FEDERAL RESERVE

BOARD

Merger Process Needs

Guidelines for

Community

Reinvestment Issues

United States General Accounting Office

GAO Report to the Honorable Maxine Waters

and the Honorable Bernard Sanders,

House of Representatives

September 1999

GAO/GGD-99-180

United States General Accounting Office General Government Division

Washington, D.C. 20548

Page 1 GAO/GGD-99-180 Guidelines for Community Reinvestment Issues

B-280468

September 24, 1999

The Honorable Maxine Waters

The Honorable Bernard Sanders

House of Representatives

As you requested, this report discusses large bank holding company1

(BHC) mergers and the impact of such mergers on lending in low- and

moderate-income (LMI) areas.2

 In reviewing BHC merger applications, the

Federal Reserve Board (FRB) has a statutory responsibility, established by

the Bank Holding Company Act of 1956 (BHC Act) and the Community

Reinvestment Act of 1977 (CRA), to take into account an institution’s

record of community credit performance when evaluating the application.

In addition, the BHC Act requires that FRB take into account the

convenience and needs of the community to be served when reviewing

BHC merger applications.

As agreed with your offices, our objectives were to analyze (1) FRB’s legal

responsibilities in assessing BHC mergers for CRA performance; (2) FRB’s

process for assessing the CRA performance of six large BHC merger

applicants, including how FRB addressed the principal public concerns

related to the CRA performance; and (3) the premerger and postmerger

mortgage lending in LMI and minority communities for three large BHC

mergers. To meet the first two objectives, we focused on six of the largest

bank mergers in the period of 1995-98.3

 

1

 A bank holding company consists of a parent company with one or more subsidiaries that may

include banks, thrifts, and other entities providing services that the regulators consider closely related

to banking.

2

 You also asked us to discuss the impact of large bank mergers and enforcement of the Fair Housing

Act and the Equal Credit Opportunity Act (collectively, the fair lending laws). We are conducting a

separate assignment and issuing another report to address these issues.

3

 The six large BHC mergers we reviewed were (1) NBD Bancorp, Inc.’s acquisition of First Chicago

Corporation in 1995; (2) Fleet Financial Group’s acquisition of Shawmut National Corporation in 1995;

(3) Chemical Banking Corporation’s acquisition of Chase Manhattan Corporation in 1996; (4)

NationsBank Corporation’s acquisition of Boatmen’s Bancshares, Inc. in 1997; (5) NationsBank

Corporation’s acquisition of BankAmerica Corporation in 1998; and (6) Bank One Corporation’s

acquisition of NBD First Chicago Corporation in 1998.
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In acting on a bank holding company merger application, FRB must

consider the convenience and needs of the community to be served under

the BHC Act and take into account the record of the relevant depository

institutions under CRA. Neither the BHC Act nor CRA, or their legislative

histories, provide guidance on how FRB is to take these factors into

account when considering a BHC merger application. The depository

institutions’ primary federal regulators have developed guidance for their

assessments of a depository institution’s CRA performance. However,

FRB has not developed guidance on how it evaluates the CRA records,

including the performance ratings and public comments comprising that

record, of the merging BHCs.

For the six BHC merger applications that we reviewed, FRB attempted to

balance the regulators’ ratings of the depository institutions’ CRA

performance and information presented through public comments that

raised concerns with the institutions’ CRA records. All of the bank

subsidiaries included in the six mergers had satisfactory or outstanding

performance ratings in their most recent CRA examinations. The principal

CRA concerns raised by commenters included insufficient home mortgage

lending, insufficient small business lending, and branch closures in LMI

areas. FRB analyzed Home Mortgage Disclosure Act of 1975 (HMDA) and

small business data to address concerns of insufficient home mortgage and

small business lending, respectively. FRB’s consideration of branch

closures was generally limited to a determination of whether the applicant

had an adequate branch closure policy and its past branch closure record.

FRB approved all six mergers, but four of the mergers were approved with

conditions for the reporting of subsequent branch closures. FRB’s lack of

written guidance on how it addresses public comments raising CRA

concerns contributed to the concerns voiced by community groups and the

BHC applicants regarding the lack of transparency in the merger

application process. In this report, we recommend that FRB address this

lack of transparency.

On the basis of our analysis of home mortgage lending, BHC merger

activity had not been associated with adverse changes in single-family

home mortgage lending in minority and LMI areas in the major

metropolitan areas served by the acquired BHCs for the three BHC

mergers we analyzed. NBD’s acquisition of First Chicago and Chemical’s

acquisition of Chase Manhattan have been associated with stable to

increased lending in the relevant areas. Fleet’s acquisition of Shawmut has

been associated with a decline in Fleet’s market share in the relevant areas

that mirrored its decline in overall market share in the Boston

metropolitan statistical area.

Results in Brief
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Under the BHC Act, a bank holding company must obtain FRB’s approval

before merging with or acquiring another bank holding company. In

reviewing an application filed by a bank holding company, FRB is required

to consider several factors, including the financial and managerial

resources of the applicant, the future prospects of both the applicant and

the bank holding company that is to be acquired, the competitive effects of

the merger, and the convenience and needs of the community to be served.

Even before CRA was enacted, FRB’s regulations called for public

comments in connection with the merger applications pursuant to the BHC

Act obligation of FRB to ensure that the merger would meet the

convenience and needs of the local community. The Board of Governors

has the authority to delegate its application authority to the Reserve Banks

if the application fits certain criteria. However, an application may raise

several issues that might require Board Action under such factors as the

financial, managerial, and convenience and needs of the community,

including the CRA performance of the applicant.

FRB approved the six BHC mergers in our study. With the exception of

NBD’s acquisition of First Chicago and Bank One’s acquisition of NBD

First Chicago, the lead bank subsidiaries4

 also took actions to merge their

operations. Bank subsidiaries are also required to receive approval from

their primary regulators for such combinations. For three BHC mergers,

the lead bank subsidiaries of the merging BHCs submitted their

applications to their primary regulators after FRB approved their BHC

applications.

CRA requires all federal bank and thrift regulators—FRB, the Office of the

Comptroller of the Currency (OCC), the Office of Thrift Supervision (OTS),

and the Federal Deposit Insurance Corporation (FDIC)—to encourage

depository institutions under their jurisdiction to help meet the credit

needs in all areas of the community that the institution is chartered to

serve, consistent with safe and sound operations. CRA requires that the

appropriate federal supervisory authority (1) assess the institution’s record

of meeting the credit needs of its entire community, including LMI areas,

and (2) take that record into account in its evaluation of bank expansion

applications. Such applications include those to establish or relocate a

branch or home office and applications for mergers, consolidations, or the

purchase of assets or assumption of liabilities of a regulated financial

institution. Assessment areas, also called delineated areas, represent the

 4

 In this report, we refer to banks and thrifts that are subsidiaries of BHCs as bank subsidiaries. Lead

bank subsidiary means the largest insured depository institution controlled by the bank holding

company at any time.

Background
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communities for which the regulators are to assess an institution’s record

of CRA performance. CRA also requires the regulators to periodically

assess an institution’s community lending performance during

examinations. Only insured banks and thrifts are subject to the provisions

of CRA. On the basis of the findings of the examination, depository

institutions are assigned a rating—that is, outstanding, satisfactory, needs

to improve, or substantial noncompliance. Nonbank financial institutions,

such as mortgage companies, are not subject to CRA provisions.5

Unlike certain other banking laws, CRA does not provide regulators with

the authority to take enforcement action on the basis of findings of

noncompliance resulting from the examination process. The CRA

application evaluation process is the exclusive mechanism for enforcing

the statute. Regulations proposed in 1993 and 1994 by the regulators

included a new set of sanctions to enforce CRA. According to the

proposed regulations, a poor CRA rating would have been considered a

violation of a bank’s affirmative obligation to meet the credit needs of its

entire community. A bank that received a CRA rating of substantial

noncompliance would have been subject to enforcement actions

authorized by the Federal Deposit Insurance Act.6

 In a letter to OCC dated

December 15, 1994, the Department of Justice (Justice) concluded that the

agencies lack legal authority to use cease and desist orders and civil

money penalties to combat noncompliance with CRA. The final

regulations did not contain the enforcement provisions, but, consistent

with the statute, did require that the CRA record be taken into account in

the application process.

Since the initial enactment of CRA, the regulations that implement the act

have been amended.7

 In 1993, the Clinton Administration instructed the

federal bank regulators to revise the CRA regulations by moving from a

process- and paperwork-based system to a performance-based system

focusing on results, especially the results in LMI areas of an institution’s

communities. Based on these instructions, the federal banking agencies

replaced the qualitative CRA examination system with a more quantitative

system that is based on actual performance. For large retail institutions,

CRA performance is measured through the use of three tests as follows.

 

5

 In this report, we refer to BHC subsidiaries that are not insured depository institutions, such as

mortgage companies, as nonbank subsidiaries.

6

 Section 8 of the Federal Deposit Insurance Act provides enforcement mechanisms to the regulators

for violations of banking law. Among the mechanisms are cease and desist orders and civil money

penalties.

7

 FRB implemented CRA with its Regulation BB.
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• The lending test entails a review of an institution’s lending record,

including originations and purchases of home mortgage, small business,

small farm, and, at the institution’s option, consumer loans throughout the

institution’s service area, including the LMI areas. The lending test is

weighted more heavily than the investment and service tests in the

institution’s overall CRA rating.

• The investment test evaluates an institution’s investment in community

development activities.

• The service test requires the examiner to analyze an institution’s system

for delivering retail banking services and the extent and innovativeness of

its community development services.

In May 1995, the bank regulators issued the new CRA regulations (the

performance-based CRA regulations).8

 For large institutions, the

performance-based CRA regulations became effective on July 1, 1997.

Therefore, CRA ratings that FRB relied upon in the six merger applications

we considered were mostly from the previous process- and paperworkbased system.

Most of the bank subsidiaries of the BHCs we reviewed were national

banks regulated by OCC. The exception was Chemical Bank, which is a

state-chartered bank regulated by FRB and the New York State Banking

Supervisor.

HMDA was enacted to provide regulators and the public with information

on home mortgage lending so that both could determine whether

institutions were serving the credit needs of their communities.9

 HMDA

was amended in 1989 to include the collection of data on the race, sex, and

income of applicants and the action taken on the application. Home

mortgage lenders that are required to report are to submit HMDA data files

for each loan application. HMDA reporting requirements first only applied

to banks and their subsidiaries. Over the years, Congress has expanded

HMDA’s coverage to include mortgage banking subsidiaries of bank

holding companies and independent mortgage companies that have assets

above a certain level and a home or branch office in a metropolitan

statistical area (MSA). For data collection in 1998, depository institutions

with an office in an MSA are covered if they had more than $29 million in

assets as of December 31, 1997. Nondepository lenders are covered if they

were located in or made loans in metropolitan areas and had assets of

 8

 A previous report, Community Reinvestment Act: Challenges Remain to Successfully Implement CRA,

(GAO/GGD-96-23, Nov. 28, 1995), analyzed CRA and its implementing regulations.

9

 FRB implemented HMDA with its Regulation C.
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more than $10 million or if they originated 100 or more home purchase

loans in the preceding year.

FRB’s Regulation BB describes the data that depository institutions are

required to collect and maintain for CRA purposes. Under revisions of

Regulation BB, depository institutions defined as “large” were required,

beginning in 1996, to collect and report data annually on the number and

dollar amount of their originations and purchases of small loans to

businesses and farms and on any community development loans. Only

independent institutions with total assets of $250 million or more and

institutions of any size if owned by a holding company that has assets of $1

billion or more are subject to the data reporting requirements. The Federal

Financial Institutions Examination Council (FFIEC) made the CRA data on

1996 small business lending available to the public in October 1997.10 The

data on business and farm lending reported under the CRA regulations are

more limited in scope than data reported on home mortgage lending under

HMDA. In particular, the CRA data include information only on loans

originated or purchased, not on applications that are turned down or

withdrawn by the customer. Also, unlike HMDA data, the CRA data do not

include the income, sex, or racial or ethnic background of applicants.

Finally, again unlike HMDA data, the CRA data are not reported and

disclosed application by application; rather, the data are aggregated into

three loan-size categories and then reported at the census tract level.

To determine FRB’s legal responsibilities for assessing CRA performance,

we reviewed the BHC Act and CRA, their legislative histories, regulations

promulgated under each act, and related published materials.

To assess FRB’s process for reviewing BHC merger applications for CRA

performance, we used a case study approach. We selected, on the basis of

the assets of the acquired BHC, the two largest BHC mergers in 1995, the

single largest BHC merger in 1996 and again in 1997, and the two largest

BHC mergers in 1998.11 We reviewed the CRA public evaluation reports of

the lead bank subsidiaries of the BHCs included in our case studies,

internal FRB memorandums and analyses conducted in conjunction with

the six merger applications, orders publicly issued by the Board of

Governors containing approval of each merger, public comment letters,

 

10 The member agencies of FFIEC include OCC, FDIC, OTS, FRB, and the National Credit Union

Administration. For HMDA–related matters, the Department of Housing and Urban Development also

participates in FFIEC deliberations.

11 In this report, we refer to the applicant as the BHC that acquired the target BHC. We refer to the

consummation of the transaction as the merger.

Scope and

Methodology
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and FRB summaries of concerns raised in public comment letters. The

scope of our reported findings on how FRB addressed the principal public

concerns was limited by the confidentiality of particular FRB analyses and

conclusions.

FRB’s process for the six mergers in our study cannot be generalized to all

large BHC mergers because of the small sample size (i.e., six mergers) and

the judgment involved in selecting the sample.

We focused on FRB’s BHC merger application process in reviewing the six

mergers. We did not assess the quality of previous CRA examinations

conducted by primary banking regulators or the accuracy of public

comments. We also did not verify the accuracy of data and other inputs

relied upon by FRB in its review of the six merger applications.

To address the third objective on premerger and postmerger home

mortgage lending for three of the six mergers completed in 1995 and 1996,

we obtained and analyzed HMDA data. We did not verify the accuracy of

the HMDA data.

In addressing our three objectives, we interviewed officials from FRB, the

Federal Reserve Bank of New York, OCC, the Office of New York State’s

Supervisor of Banking, the BHCs included in our case studies, the

American Bankers’ Association, the Consumer Bankers’ Association, and a

selected number of community groups submitting public comments in

opposition to the mergers included in our case studies. We also reviewed

relevant published literature on CRA, home mortgage lending, and the use

of HMDA data.

Appendix I provides a more detailed discussion of our scope and

methodology.

We conducted our work in Charlotte, NC; Chicago, IL; New York, NY; and

Washington, D.C., between June 1998 and August 1999 in accordance with

generally accepted government auditing standards. We requested

comments on a draft of this report from FRB and OCC. FRB’s and OCC’s

written comments are discussed near the end of this letter and are

reprinted in appendixes VI and VII, respectively. In addition, we provided

Bank One, Chase Manhattan, and Fleet the section of our draft report from

our HMDA analysis on their respective institutions. We incorporated their

technical comments where appropriate.
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In acting on a BHC merger application, FRB must consider the

convenience and needs of the community to be served under the BHC Act

and take into account the records of the relevant depository institutions

under CRA. Neither the BHC Act nor CRA, or their legislative histories,

provide guidance on how FRB is to take into account the convenience and

needs of the community when considering a BHC merger application. The

federal regulators, including FRB, have developed guidance on how to

assess a depository institution’s CRA performance. However, FRB has not

developed guidance on how it will evaluate the CRA record, comprising

the regulators’ ratings of institutions’ CRA performance and comments

from the public, for large BHC merger applications.

Under the BHC Act, FRB is required to review the bank holding company’s

merger application for the convenience and needs of the communities to

be served. FRB has defined convenience and needs to relate to the effect

of a proposal on the availability and quality of banking services in a

community. FRB considers convenience and needs as including the record

of CRA performance. The requirement to consider the convenience and

needs of the community has been included as part of the BHC Act since its

original enactment in 1956. In the 1970s, Congress increased the need for

depository institutions to focus on the convenience and needs of local

communities when it passed CRA. CRA was passed in response to a

national concern over redlining12 practices.

CRA requires federal regulators, including FRB, to take into account the

CRA record of the applicant in their evaluation of an application related to

a deposit facility. CRA defines applications to include (1) applications to

establish or relocate a branch or home office and (2) applications for

mergers, consolidations, or the purchase of assets or assumption of

liabilities of a regulated financial institution. Nonbank subsidiaries of

BHCs are not subject to CRA. However, CRA regulations allow bank

subsidiaries of BHCs to receive CRA credit for home mortgage loans

originated by affiliated nonbank subsidiaries in the delineated areas of the

bank subsidiaries.

 

12 Redlining is a refusal of lenders to make loans in certain geographic areas, typically minority or lowincome neighborhoods, regardless of the creditworthiness of the loan applicant.

Guidance Has Not

Been Developed for

Implementing the BHC

Act and CRA in the

BHC Merger

Application Process

The BHC Act Calls for

FRB’s Review of Impacts on

Convenience and Needs
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The federal depository institution regulators, including FRB, have

developed guidance, using rulemaking and additional efforts, on how CRA

performance should be considered during the applications process for

depository institutions. In 1989, the federal bank regulators published The

Statement of the Federal Financial Supervisory Agencies Regarding the

Community Reinvestment Act (the Statement). The Statement was

designed to provide federally insured financial institutions and the public

with guidance regarding the requirements of CRA and the policies and

procedures the agencies will apply during the depository institution

application process. After the performance-based CRA regulations were

issued in 1995, FFIEC published Interagency Questions and Answers

Regarding Community Reinvestment in 1997 and 1999. The 1989

Statement was withdrawn effective April 5, 1999, and replaced by the

Interagency Questions and Answers Regarding Community Reinvestment.13

The 1989 Statement, which was in effect during the mergers contained in

our study, included guidance on the following issues:

• the basic components of an effective CRA policy,

• the role of examination reports on CRA performance in reviewing

applications,

• the need for periodic review and documentation by financial institutions of

their CRA performance, and

• the role of commitments in assessing an institution’s performance.

Most notably, the regulators concluded in the Statement that the CRA

record of the institution, as reflected in its examination reports, would be

given great weight in the application process. In the Interagency

Questions and Answers for 1999, the regulators continued to stress the

significance of the CRA examination in the application process, and they

stated that the examination is an important, and often controlling, factor in

the consideration of an institution’s record.14

In addition to the CRA examination, the regulators have consistently

underscored the importance of public comments to the applications

process. According to the 1989 Statement, the CRA examination is not

conclusive evidence in the face of significant and supported allegations

from a commenter. Moreover, the balance may be shifted further when

the examination is not recent or the particular issue raised in the

 

13 Questions and Answers Regarding Community Reinvestment, 64 Fed. Reg. 23618-23648 (1999).

14 64 Fed. Reg. at 23641.

Federal Bank Regulators

Have Developed Guidance

for Assessing CRA

Performance During the

Application Process for

Depository Institutions
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application proceeding was not addressed in the examination. During the

development of the performance-based CRA regulations, a number of

commenters expressed concern that the regulators may provide a “safe

harbor” to depository institutions from challenges to their CRA

performance record in the application process if they achieved an

outstanding CRA examination rating. However, in the preamble of the

1995 Final Rule on the CRA regulations, the regulators reconfirmed the

importance of the public comments in the applications process by

acknowledging that materials relating to CRA performance received during

the applications process can and do provide relevant and valuable

information.

For each BHC application submitted, FRB publicly issues an Order

containing its application decision and a discussion supporting its

decision. FRB officials told us that Board Orders provide a detailed

explanation of how the Board arrived at its decision and puts the facts into

the context of the specific case at hand. In the FRB officials’ view, Board

Orders provide guidance on FRB’s BHC application process. We reviewed

the Board Orders approving the six BHC merger applications in our study.

The Orders provided insight into issues considered by the Board of

Governors. For example, the Orders discussed FRB’s consideration of

CRA performance ratings received by bank subsidiaries, recent trends in

home mortgage lending by the BHCs, and CRA agreements reached by

BHCs with community groups. FRB’s treatment of the various CRA issues

appeared to be consistent with that suggested in the 1989 Statement for

assessing CRA performance.

The BHC Act requires FRB’s approval for formation of a BHC, BHC

acquisition of control of another BHC or a subsidiary bank or bank assets,

or the merger of BHCs. There were nearly 6,000 BHCs operating as of

year-end 1998; almost 700 BHC cases of applications were submitted to the

Federal Reserve for approval in 1998. Of these, over 400 were for mergers

and acquisitions. Consistent with the Statement for assessing CRA

performance, FRB regulations provide that FRB will take into account the

record of performance under CRA of each insured bank and thrift

controlled by a BHC applicant and each subsidiary bank proposed to be

controlled by an applicant. FRB officials told us that if an institution was

examined recently, FRB would be more likely to rely on the rating given by

the bank’s primary regulator. If the CRA exam is not recent or there have

been significant public comments raising concerns, FRB would be more

likely to undertake a review of the institution’s CRA performance and

obtain more information from the primary bank regulator. FRB considers

Board Orders Explain BHC

Application Decisions

FRB Has Not Developed

Additional Guidance on

How It Evaluates an

Institution’s CRA

Performance in the BHC

Merger Application Process
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the CRA performance of the BHC in the delineated areas of its bank

subsidiaries.

Also consistent with the Statement for assessing CRA performance, FRB

regulations require public notice of a BHC application and a specific public

comment period. FRB does not have written guidelines that summarize

how public comments raising CRA concerns are to be used along with

other information in its BHC merger application decisions. An FRB

Associate General Counsel told us that although the BHC Act does not

require a public comment period, FRB voluntarily adopted the requirement

of a notice, comment, and specific comment period because FRB found

the public process helpful.

FRB’s Rules of Procedure state that an applicant must file notice of the

application in the classified advertising legal notices section of the local

newspaper. The notice must state that the public has an opportunity to

comment for at least 30 days after the date of publication.15 Under the

revised Regulation Y, FRB will not accept late written comments except in

extraordinary circumstances. FRB can extend, and has extended, the 30-

day time frame. According to Regulation Y, the 30-day comment period is

required for all BHC merger applications to acquire an insured depository

institution whether the applications are Board Action cases or delegated to

the Reserve Banks for a decision. BHC officials we interviewed told us

that FRB’s adherence to the public comment period deadlines was better

than it had been in previous BHC mergers.

Relatively few BHC mergers have been protested on CRA grounds. As

shown in table 1, the number of BHC merger/acquisition cases that

received CRA protests was small during the period of 1995-98.16 In 1998,

the total number of BHC acquisition/merger cases that were protested on

CRA grounds was 18 cases out of 424 BHC merger/acquisition cases.

 15 FRB may, in its discretion, extend the public comment period and, if a person has requested a copy of

a notice or application, FRB may, in its discretion, grant such person an extension of the comment

period for up to 15 calendar days.

16 We included data on both BHC acquisitions and mergers. Sections 3(a)(3) and 3(a)(5) of the BHC

Act require approval for BHC acquisitions and mergers, respectively. In an acquisition, the applicant is

a BHC and the target institution may be a BHC or a bank subsidiary. In a merger, both the applicant

and the target are BHCs. Determining whether a BHC application was an acquisition or merger

depends on how the transaction was structured.
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BHC merger/acquisition cases

Protested

Year Total Number

Percentage of

total cases

1995 386 40 10.4%

1996 359 30 8.4

1997 347 16 4.6

1998 424 18 4.2

a

Protested means those BHC mergers/acquisitions in which FRB received substantive comments

regarding a BHC's lending record or CRA record.

Source: FRB.

The Statement for assessing CRA performance does not specifically

address issues that arise in BHC merger application decisions, such as the

consideration to be given to the activities of nonbank subsidiaries. Large

BHCs comprise bank subsidiaries that are subject to CRA operating in

delineated areas and may include nonbank subsidiaries, such as mortgage

lending companies, that are not subject to CRA operating within and

outside of the delineated areas of the bank subsidiaries. However, CRA

regulations allow bank subsidiaries of BHCs to receive CRA credit for

home mortgage loans originated by their affiliated nonbank subsidiaries in

the delineated areas of the bank subsidiaries.

In reviewing the six BHC merger applications, it appeared to us that FRB

attempted to balance the CRA performance ratings with information that

raised concerns with the institutions’ CRA performance obtained through

the public comment process. All of the bank subsidiaries in our selected

merger cases received a satisfactory or better CRA rating from their

primary federal bank regulator. The four principal CRA concerns raised in

public comments were (1) an insufficient amount of home mortgage

lending in LMI areas, (2) an insufficient amount of small business lending

in LMI areas, (3) expected bank branch closures in LMI areas, and (4) a

lack of specificity in CRA agreements. FRB appeared to give more weight

to CRA performance ratings and concerns with home mortgage and small

business lending than to other concerns raised. FRB conducted analyses

with HMDA and CRA small business data to address concerns of

insufficient home mortgage and small business lending, respectively.

FRB’s consideration of branch closures was generally limited to a

determination of whether the applicant had an adequate branch closure

policy and its past branch closure record. According to FRB officials, CRA

agreements17 did not play a role in FRB’s assessment of the six merger

 

17There is no consensus among banks and community groups on a definition of a CRA agreement. CRA

agreements can be called agreements, pledges, or commitments. The level of involvement by the

Table 1: Number of BHC

Merger/Acquisition Cases Receiving

CRA Protests

FRB’s CRA

Performance Review

Process for the Six

Large BHC Merger

Applications Lacked

Transparency
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cases. FRB does not have written guidance on how it considers the

sufficiency of home mortgage and small business lending or what branch

closure policy it would consider adequate. FRB’s lack of written guidance

on how it addresses public comments contributed to the concerns voiced

by the community groups and BHC applicants we contacted regarding the

lack of transparency in the merger application process.

All of the bank subsidiaries in the six merger cases received a CRA

performance rating of satisfactory or better. Over half of the lead bank

subsidiaries owned by the applicants and the target institutions received

an outstanding CRA rating from their primary bank regulators. CRA

performance ratings for the bank subsidiaries in our study are presented in

appendix II.

The CRA ratings of the bank subsidiaries in our study were similar to the

CRA ratings of their peers. As table 2 shows, all large bank subsidiaries

(assets of $10 billion or greater) examined by OCC and FRB received

either outstanding or satisfactory ratings during the period of 1995-98.

Performance rating

Regulator Outstanding Satisfactory

Needs to

improve

Substantial

noncompliance

Number

of banks

OCC 17 9 0 0 26

FRB 12 12 0 0 24

Sources: FRB and OCC.

For all BHC mergers, including the six cases that we reviewed, FRB’s

Division of Consumer and Community Affairs (DCCA)18 screened the most

recent CRA ratings of both the bank subsidiaries of the applicant

institution and the target institution. According to FRB officials, this task

was a major component of FRB’s review of each merger application.

Absent any ratings issues or CRA allegations, according to DCCA officials,

DCCA generally focuses its CRA examination analysis on the lead banks of

the applicant and the target institution. Since the new CRA regulations for

large banks were not effective until July 1997, almost all of the public

evaluation reports on the lead banks of the BHCs involved in the six BHC

 community groups and the level of specificity differentiates the various types of agreements. In some

cases, community groups negotiate with the banks regarding specific CRA goals to be reached in the

community. These are referred to as negotiated agreements. Another type of community agreement is a

pledge. Generally, banks that make pledges consider input from community groups, but the bank

unilaterally formulates the final pledge.

18 Among its responsibilities, DCCA is charged with reviewing bank and bank holding company

applications for CRA and compliance issues.

All of the Bank Subsidiaries

Received a Satisfactory

Rating or Better

Table 2: The Distribution of CRA

Performance Ratings for Large

Banks Examined by OCC and FRB,

1995-98
B-280468

Page 14 GAO/GGD-99-180 Guidelines for Community Reinvestment Issues

mergers were completed under the old process-oriented CRA regulations.

According to the DCCA Manager for Applications, DCCA will do additional

analysis on the CRA records of the applicant and the target institution

when comments regarding the institutions’ CRA records are sent.

DCCA was generally dependent on CRA examination information from the

other federal bank regulators for assessing the CRA performance of large

BHCs. In the six merger cases, FRB did not have its own on-site CRA

information on the bank subsidiaries.19 A federal regulator other than the

FRB supervised almost all of the bank subsidiaries of the BHCs in the six

merger cases. Of the six merger cases, only the lead bank of the Chemical

Banking Corporation was supervised by FRB. The lead banks of the other

11 BHCs were supervised by OCC. DCCA staff told us that FRB does not

second-guess the CRA examinations conducted by the other federal bank

regulators. The purpose of FRB’s review of the CRA record is not to

reexamine the banks for CRA compliance.

We were told by DCCA analysts that after the initial screening of the CRA

ratings, they reviewed the most recent public evaluation report of the lead

bank of the applicant and the target institution. If the DCCA analyst

determined it was warranted, he or she talked with the OCC CRA

compliance examiner. In three of the five merger cases in which FRB was

not the primary bank regulator of the lead bank of the applicant—FleetShawmut, NationsBank-BankAmerica, and Bank One-NBD First Chicago,

DCCA analysts contacted OCC for additional supervisory information.

FRB officials told us that additional supervisory information was not

obtained in the NationsBank-Boatmen’s merger because the July 1995 CRA

examination of NationsBank was relatively current.

In two of the merger cases, NationsBank-BankAmerica and Bank One-NBD

First Chicago, DCCA reviewed CRA information from OCC that was more

than 2 years old. During the application review, OCC was examining the

lead banks of both NationsBank and Bank One. In the absence of recent

examinations of the lead banks, DCCA analysts obtained limited

information from OCC’s ongoing examinations for these two cases.

According to an OCC official, the implementation of OCC’s new

performance-based CRA examination procedures for the 30 largest

national banks caused delays in the frequency of examinations for these

institutions.

 

19 Bank holding companies are not subject to CRA; therefore, they are not inspected by the Federal

Reserve Banks for CRA compliance performance.

DCCA Was Dependent on

CRA Examination

Information From the Other

Federal Bank Regulators for

Assessing the CRA

Performance of Large BHCs
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Page 15 GAO/GGD-99-180 Guidelines for Community Reinvestment Issues

FRB received public comments addressing a wide variety of issues,

including CRA issues, for all six mergers. The number of comments ranged

from a high of over 1,600 comments for NationsBank’s acquisition of

BankAmerica to a low of 17 comments for NBD’s acquisition of First

Chicago. The number of public comments that FRB received for the other

4 mergers ranged from about 50 to about 300. For each merger, the

majority of the comments were in support of the merger. Among the

comments in opposition to each of the six mergers, FRB received public

comments criticizing the CRA performance of either the applicant or the

target institution. In addition to considering written comments, FRB

conducted public meetings for four of the six mergers: (1) Fleet’s

acquisition of Shawmut, (2) Chemical’s acquisition of Chase, (3)

NationsBank’s acquisition of BankAmerica, and (4) Bank One’s acquisition

of NBD First Chicago.20

The four principal CRA concerns raised in the six mergers were (1) an

insufficient amount of home mortgage lending in LMI areas, (2) an

insufficient amount of small business lending in LMI areas, (3) expected

bank branch closures in LMI areas, and (4) the lack of specificity in CRA

agreements. A summary of comments raising these concerns for each of

the six BHC mergers is presented in appendix III.

For the six mergers, commenters raised concerns that either the

applicant’s or the target institution’s performance was generally

inadequate in providing mortgage lending to minority groups and in LMI

areas. In many cases, commenters included statistical results from HMDA

analysis to help support their claims of insufficient home mortgage

lending.

FRB received comments alleging an insufficient level of small business and

rural lending for two mergers, NationsBank’s acquisition of BankAmerica

and Bank One’s acquisition of NBD First Chicago. Comments related to

small business lending only affected the later two BHC mergers because

banks were not required to collect small business data and submit the data

to their primary bank regulator until 1996.

 20 FRB has discretion as to whether to provide an opportunity for formal hearings or allow interested

persons to present their views orally before the Board of Governors. Unless otherwise ordered, any

oral presentation is public and notice of the public proceeding is published in the Federal Register.

All of the BHC Mergers in

Our Study Were Protested

on CRA and Other Issues

Home Mortgage Lending,

Small Business Lending,

Branch Closures, and CRA

Agreements Were the Four

Principal CRA Public

Concerns in the Six Mergers

Commenters Raised Concerns of

Insufficient Home Mortgage and

Small Business Lending in LMI

Areas
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Page 16 GAO/GGD-99-180 Guidelines for Community Reinvestment Issues

In all six mergers, commenters were concerned with the number and

location of banking branches that would be closed in LMI areas after the

merger and the resulting impacts on LMI areas. Commenters generally

referred to bank holding company branch closure practices in previous

mergers to support their claim that the pending mergers would result in

similar closings. For example, during the application process for Bank

One’s acquisition of NBD First Chicago, a community group cited Bank

One’s closure of branches after its acquisition of First USA and noted that

the branches closed by Bank One were located in predominantly minority

communities and LMI areas.

Community groups wanted CRA agreements that centered on banks’

establishing, or pledging, specific lending and investment activities that

serve the banks’ delineated areas, including LMI areas. The community

groups we contacted told us that CRA agreements are beneficial in

meeting the convenience and needs of LMI communities, such as obtaining

affordable mortgage loans or small business loans. Of the six mergers we

reviewed, FRB received comments on the issue of community agreements

or pledges for three BHC mergers: Chemical’s acquisition of Chase,

NationsBank’s acquisition of BankAmerica, and Bank One’s acquisition of

NBD First Chicago.

Pledges issued by Chemical Bank and NationsBank were criticized for

lacking specific lending goals. Chemical Bank issued a pledge for

increased lending and community development funding of $18.1 billion

primarily in New York, New Jersey, Connecticut, and Texas. The goals of

the pledge included loans and investments to assist small businesses,

affordable mortgages, and commercial and economic development.

According to the summary of comments prepared by FRB, commenters

criticized the pledge as inadequate because it was not enforceable, could

not be monitored by community groups, was too vague to be meaningful,

and did not identify the amount of lending that would be made within

specific communities. Before its merger with BankAmerica, NationsBank

made a 10-year pledge of $350 billion, for community development lending

and investment. The comments were similar to those made for Chemical

Bank’s pledge. NationsBank’s pledge was also criticized for lacking

geographic detail and enforceability.

In 1998, before Bank One’s acquisition of NBD First Chicago, a Chicago

community group obtained a CRA commitment from NBD First Chicago

and Bank One. The CRA commitment included, among other features,

increased bank lending to small businesses in Chicago’s LMI areas.

Commenters Raised Concerns

That Branch Closures Would

Have a Negative Impact Upon

LMI Areas

Commenters Criticized

Agreements Reached in Three

BHC Mergers
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Page 17 GAO/GGD-99-180 Guidelines for Community Reinvestment Issues

Community groups criticized Bank One for not making commitments in

other areas where Bank One is located.

FRB attempted to address three of the four CRA concerns that were raised

in public comments. FRB appeared to give more weight to concerns with

home mortgage and small business lending than to branch closure

concerns raised. DCCA conducted analyses of HMDA and CRA small

business data to address concerns of insufficient home mortgage and small

business lending when it became available, respectively. Generally, the

statistical results from DCCA’s analyses indicated that the lending activity

in question was sufficient. In situations where statistical results from

DCCA’s HMDA analyses indicated that the lending activity in question may

not have been sufficient, FRB generally emphasized CRA performance

ratings and cited limitations in the use of HMDA statistics. FRB faced

limitations in its legal authority to address branch closure concerns. FRB

approved four of the mergers with conditions for the reporting of branch

closures. According to FRB officials, CRA agreements did not play a role

in FRB’s assessment of the six merger cases. For each merger, DCCA

prepared a memorandum to the Board of Governors containing findings

and recommendations. The Board of Governors accepted DCCA’s

recommendations for each of the six mergers.

To address the concern of insufficient home mortgage lending, FRB’s

DCCA generated a large number of statistical tabulations using HMDA

individual loan file data containing the mortgage lending activity for each

BHC across a large number of geographic areas. DCCA analysts reviewed

HMDA data submitted by commenters, but used their own HMDA data

analysis. According to DCCA analysts, many of the commenters did not

include the home mortgage lending of the nonbank subsidiaries in their

analysis. In its HMDA analysis, DCCA included home lending of nonbank

mortgage subsidiaries in the delineated areas of the bank subsidiaries

because such lending qualifies for CRA credit. Examples of FRB analysis

with HMDA data in response to public comments are contained in

appendix IV.

For each merger application, DCCA produced statistical tabulations for

geographic areas where home mortgage lending concerns were raised. For

example, NationsBank’s acquisition of BankAmerica generated a large

number of comments raising concerns in a number of states, counties, and

MSAs. For each geographic area (i.e., a state, county, or MSA) where

concerns of insufficient mortgage lending in LMI areas were raised, the

statistical tabulations were uniformly reported. The statistical tabulations

generated and analyzed by DCCA generally did not cover subsets of LMI

FRB Attempted to Address

Concerns Raised in Public

Comments

FRB Analyzed HMDA Data to

Address Home Mortgage

Concerns
B-280468

Page 18 GAO/GGD-99-180 Guidelines for Community Reinvestment Issues

areas. To respond to comments on these areas, DCCA analysts told us that

they relied on information supplied by the applicant or the Federal Reserve

Bank analyzing the merger.

DCCA analyzed the statistical tabulations and prepared a memorandum for

each BHC application to the Board of Governors. The memorandums

focused on the tabulations that the DCCA analysts thought would be most

useful to the Board. Additional statistics were provided in an appendix to

each memorandum. The Board voted to approve each merger in our study.

Statistics in the memorandum for each BHC merger application generally

emphasized the recent trends in mortgage applications from the LMI areas

and minority group applicants referenced in the comment letters. In most

cases where public concerns of insufficient mortgage lending were raised,

the statistical tabulations within the memorandum indicated that

applications from LMI areas and the referenced minority group’s

applicants increased in the most recent 2- to 3-year period before the

merger application.21 In situations where statistical results from FRB’s

HMDA analyses appeared to indicate that the lending activity in question

may not have been sufficient, FRB tended to emphasize CRA performance

ratings and cited limitations in the use of HMDA statistics.

There are other measures of mortgage loan sufficiency that were not

contained in the memorandums. In particular, DCCA analysts calculated

the portfolio share22 of a BHC’s total mortgage originations in the relevant

state, county, or MSA accounted for by mortgage originations from LMI

census tracts and applicants classified with reference to a particular

minority group. The portfolio shares for all institutions originating

mortgages in the relevant state, county, or MSA were also generated by

DCCA. This statistic can be considered a benchmark to which each BHC’s

portfolio share could be compared. Examples of these statistics are

included in appendix IV when we refer to all institutions in the six tables.

Generally, the BHCs’ portfolio shares were similar to or exceeded the

corresponding portfolio share for all institutions.23

 

21 Examples of the application statistics are included in the six tables in appendix IV.

22 Portfolio share is defined as the total number of loan originations for a given institution in the census

tracts being analyzed divided by the total number of loans originated by the institution in the

metropolitan area.

23 The one exception occurred in the case of public concerns raised in NationsBank’s acquisition of

BankAmerica with respect to mortgage lending to Hispanics in Texas. The percentage of NationsBank

mortgage originations in Texas to Hispanic applicants declined in 1996 and 1997. In both years,
B-280468

Page 19 GAO/GGD-99-180 Guidelines for Community Reinvestment Issues

Generally, the statistical results from DCCA’s analyses indicated that the

lending activity in question was sufficient. Therefore, the Board generally

found that the commenters’ concerns were not supported by DCCA’s

HMDA analysis and the institution’s CRA record.

Most of the comments that raised concerns of insufficient mortgage

lending were directed toward delineated areas of the BHCs’ bank

subsidiaries subject to CRA. However, comments were received that

raised such concerns for nonbank mortgage lending subsidiaries outside of

the delineated areas of the BHCs’ bank subsidiaries. For example, 1

comment on Chemical’s acquisition of Chase stated that Chase did not

make substantial loans to applicants from LMI communities in 15 MSAs,

many of which were not included in the delineated areas of Chase’s bank

subsidiaries. We identified one commenter who made this general

comment for numerous BHC mergers. He told us that FRB has a

responsibility to address such comments because the BHC Act, which

governs the bank and nonbank subsidiaries of a BHC, calls upon FRB to

assess the impacts of the BHC merger on convenience and needs. FRB

responded to this general comment by stating that nonbank subsidiaries of

BHCs are not subject to CRA and their lending is only relevant in the

delineated areas of the bank subsidiaries. According to a DCCA analyst,

the purpose of CRA is to encourage the bank to make loans where it is

collecting deposits.

In Bank One’s 1998 acquisition of NBD First Chicago, a Wisconsin

community group stated that the majority of Bank One’s small business

lending was targeted to larger businesses, and that the bank’s volume of

small farm loans was low. In addition to requesting that Bank One respond

to this criticism, the DCCA analyst performed her own analysis of Bank

One’s small business lending. In NationsBank’s 1998 acquisition of

BankAmerica, FRB assessed small business lending and small farm lending

in seven states. In this case, the DCCA analyst performed analysis of

NationsBank’s small business lending. FRB did not find a basis for

concern in either case.

The availability of bank services and offices after a merger is one of the

factors to be considered by FRB in assessing the effect of the merger on

convenience and needs. According to FRB officials, if preliminary branch

closure information is received, DCCA reviews the information to

determine if any of the proposed closures are in LMI areas and, if so, asks

 NationsBank’s portfolio share was less than the corresponding portfolio share for all institutions (see

table 5 in app. IV).

FRB Analyzed Small Business

Data to Address Small Business

Lending Concerns

FRB Faces Limitations in

Addressing Branch Closure

Concerns
B-280468

Page 20 GAO/GGD-99-180 Guidelines for Community Reinvestment Issues

the reason for the closures, the proximity of the receiving branch, and

what actions the applicant plans to take to mitigate the impact on that

community. The officials stated that they undertook such an analysis on

the Chemical-Chase merger application. The law does not provide the

regulators with the authority to prohibit banks from closing a branch. If

the applicant has not developed final plans for branch closings, FRB’s

consideration of branch closures is limited to a determination of whether

the applicant has an adequate branch closure policy, and any branch

closings that do occur can only be assessed in future CRA examinations

and BHC merger applications. 24 Branch closures could affect a bank’s

subsequent CRA performance rating if the closures were associated with a

decline in lending, investment, or services in the bank’s delineated areas.

The Board of Governors placed a branch closure reporting requirement on

four of the BHC mergers as a condition for approval.25 According to FRB

officials, when a branch closure reporting requirement is placed on an

applicant, a message is sent to the applicant that the Board is interested in

such plans and will be reviewing the closures associated with the

application in the context of future applications. Because FRB cannot

prohibit banks from closing branches, it is unclear what effect the

conditional approvals would have on the number of branch closings in LMI

areas.

Depository institution regulators do not have the legal authority to prohibit

banks from closing a branch. Insured banks and thrifts must post notice to

the public at least 30 days before closing a branch and provide their

regulators with at least a 90-day notice. Under performance criteria of the

CRA examination’s Service Test, the regulators are to review the bank’s (1)

distribution of branches among low-, moderate-, middle-, and upperincome areas and (2) record of closing and opening branches, particularly

in LMI areas. However, if a bank can demonstrate to the examiner that

retail banking services can be provided to LMI areas through alternative

systems, such as automated teller machines, telephone banking, or mobile

banking, the bank can receive credit under the Service Test without the

brick and mortar of a branch.

 24 The 1989 Statement points to an institution’s adoption of “a written corporate policy concerning

branch closings which contains provisions for appropriate notice, analysis of the impact of the closing

on the local community, and efforts that may be made to minimize any adverse effects” as a step taken

by institutions with the most effective programs for meeting their CRA responsibilities.

25 Under Regulation Y, the Board of Governors may impose conditions on any approval, including

conditions to address competitive, financial, managerial, safety and soundness, convenience and

needs, compliance, or other concerns to ensure that approval is consistent with the relevant statutory

factors and other provisions of the BHC Act.
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In four of the six merger cases, the Board of Governors placed a reporting

requirement regarding branch closures as a condition for approval. The

four mergers were Fleet’s acquisition of Shawmut, NationsBank’s

acquisition of Boatmen’s, NationsBank’s acquisition of BankAmerica, and

Bank One’s acquisition of NBD First Chicago. For each of the four

mergers, the Board of Governors required the applicant to provide the

Federal Reserve System with periodic reports on the number of branch

closings26 resulting from the merger and to show how it planned to

minimize the impact of these closings on LMI areas. According to the

DCCA Manager for Applications, applicants are not required to submit

branch closure plans as part of the application. However, the Board of

Governors generally orders branch closure reports from those applicants

who have not submitted branch closure plans during the application

process. Except for Fleet Financial Group, none of the four, who were

required to submit reports, had submitted a branch closure plan.

Because FRB cannot prohibit banks from closing branches, it cannot

directly affect branch closures in designated areas. Branch closures in

LMI areas, however, could potentially affect future CRA performance

ratings. In addition, FRB officials told us that the applicant may apply for

merger again in the future. For example, the DCCA analyst, who reviewed

the NationsBank-BankAmerica merger, told us that they considered

NationsBank branch closures subsequent to its acquisition of Boatmen’s in

approving its merger with BankAmerica.

According to FRB officials, CRA agreements did not play a role in FRB’s

assessment of the merger application. This view is supported by

statements in the Board’s Orders. Using the 1989 Statement as its basis,

FRB considers CRA agreements as private agreements between the banks

and the community groups. DCCA officials told us that CRA does not

provide the regulators with the enforcement authority to assess a bank’s

compliance with CRA agreements. Pledges were not considered either.

DCCA staff said they did not consider the pledges of Chemical Bank and

NationsBank or the commitment negotiated by NBD First Chicago when

developing their recommendations to the Board of Governors.

BHC officials and community groups we interviewed had opposing views

on whether FRB should consider the agreements during the application

 

26 In many cases, a branch closed from a merger may be technically a consolidation. A consolidation is

considered a relocation if the branch is located within the same neighborhood and the nature of the

business or customers served is not affected. In less densely populated areas, where neighborhoods

extend farther and a long move would not significantly affect the nature of the business or the

customers served by the branch, a relocation may occur over substantially longer distances.

CRA Agreements Did Not Play a

Role in FRB’s Assessment of the

Six Merger Cases
B-280468

Page 22 GAO/GGD-99-180 Guidelines for Community Reinvestment Issues

process. The BHC officials we interviewed supported the position that

regulators should not consider CRA agreements as part of the institutions’

CRA record. We were told by community development officials at two

BHCs that the CRA agreements are significant in terms of external

relations for the BHC with its communities. According to these officials,

the primary purpose of the commitments and pledges was not to influence

the regulatory process, since FRB does not consider the agreements of the

applicant as a part of its analysis of the applicant’s CRA record.

Alternatively, community groups we interviewed want FRB to consider the

banks’ compliance with those agreements as part of its assessment of the

applicant’s CRA record.

FRB’s lack of written guidance for how it addresses public comments

contributed to the concerns voiced by some community groups and two

BHCs regarding the lack of transparency in the merger application

process. Several of the community groups who submitted comments told

us that they did not understand the process by which FRB approved the

six BHC mergers and how FRB considered their public comments raising

concerns. The community group officials told us that FRB does not have

written criteria for how it assesses merger applications, and FRB did not

explain its process when community groups met with FRB officials. Some

of the officials told us that while FRB conducted HMDA analysis, it did not

criticize the applicant’s lending performance on the basis of the analysis.

Two BHC community development officials told us that they did not

understand why they needed to provide the Federal Reserve with

redundant information when they had established good CRA records. One

BHC official stated that if a bank has been examined for CRA, why should

the Federal Reserve have to reexamine the bank. The banking official’s

perception of FRB’s CRA review was different from that of FRB officials

who do not consider their review process to be a reexamination of the

bank’s CRA performance. The BHC officials told us that during the

application process, FRB will ask for redundant information. According to

the officials, even if FRB has requested information from the applicant on

a particular issue, it would request the same information again from the

applicant if it subsequently received comment letters on the same issue.

Commenters who raised concerns often expressed judgments that were

critical of the BHC applicant, the BHC to be acquired, and the bank and

nonbank subsidiaries of the BHCs. The merging BHCs have a business

interest in completing the merger in a timely manner with minimal

disruption to their future consolidation efforts. Therefore, the implications

The BHC Merger Application

Process Lacks Transparency
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of FRB’s actions are of major importance to the parties involved in this

process.

By analyzing three large BHC mergers using appropriate statistical

measures and benchmarks for lending performance, we found that after

none of the three mergers was there a disproportionate decline in singlefamily home mortgage lending to minority and LMI census tracts.27 NBD

Bancorp’s acquisition of First Chicago was associated with fairly stable

market share of loans in LMI and minority census tracts in the Chicago

MSA. Fleet Financial Group’s acquisition of Shawmut National Bank was

associated with a decline in Fleet’s market share in minority and LMI

census tracts that mirrored Fleet’s decline in overall market share in the

Boston MSA. Chemical Bank’s acquisition of Chase Manhattan Bank was

associated with increased market and portfolio share lending in minority

and LMI census tracts in 1997, as compared to the combined lending by the

two competing institutions in 1995.

Using HMDA data for each institution, we constructed and analyzed its

market share of loan originations and the distribution of originations

(portfolio share) across specified geographic areas. Our statistical results

using two measures, one for conventional loans and one for all loans, were

generally consistent with one another.28 For each universe of home

mortgage lending used, we calculated the market share of loan originations

in LMI, minority census tracts, and all census tracts that made up the MSA.

We also calculated the portfolio share of loan originations in LMI and

minority census tracts by the combined BHC. The market share of loan

originations is defined as the number of loan originations for a given

institution divided by the number of loan originations by all lenders in the

census tracts being analyzed. Portfolio share is defined as the number of

loan originations for a given institution in the LMI and minority census

tracts being analyzed divided by the number of loans originated by the

institution in the MSA. The lending of both BHCs before the merger and

the lending of the combined BHC after the merger were included in our

market and portfolio share measures. In addition, the market share of loan

originations by both BHCs in all census tracts in the MSA was used as a

benchmark in assessing market share changes in LMI and minority census

tracts.

 

27 We defined a minority census tract as one where members of minority groups comprise 20 percent or

more of the census tract’s households. We defined a LMI census tract as one where median family

income for the census tract did not exceed 80 percent of the median family income for the MSA.

HMDA data are the source for all lending measures.

28 Our statistical results using a broader universe of all single-family home mortgage lending are

presented in appendix V.

Bank Merger Activity

Was Not Associated

With Adverse Change

in Mortgage Lending in

Minority and LMI

Areas for Three BHC

Mergers

Our Statistical Results Were

Generally Consistent Using

Alternative Measures of

Home Mortgage Lending

Performance
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Our statistical results were also generally consistent using two different

universes of home mortgage lending, (1) conventional, single-family home

purchase loan originations and (2) all single-family mortgage loan

originations. A conventional, single-family home purchase mortgage loan is

defined as a single-family mortgage loan that is not insured or guaranteed

by the federal government, and that is for the purpose of financing the

purchase of a home. For each merger, we analyzed market and portfolio

shares for the years beginning 1 year before the acquisition through the 2nd

year after the acquisition was completed. For the three case studies used

here, the market corresponded to the MSA where the acquired BHC’s lead

banking subsidiary is located. The resulting MSAs were Chicago, Boston,

and New York for NBD’s acquisition of First Chicago, Fleet’s acquisition of

Shawmut, and Chemical’s acquisition of Chase, respectively.

As shown in table 3, NBD’s 1995 acquisition of First Chicago is associated

with fairly stable market share in the Chicago MSA and a slight increase in

market share in both LMI and minority census tracts. For conventional,

single-family home purchase loans, the market shares for both LMI and

minority census tracts increased from 1994-97. Portfolio shares rose

slightly for conventional home purchase loan originations in LMI and

minority communities. The overall increase in conventional, single-family

home purchase loan originations for the Chicago MSA was modest in

magnitude during the period of 1994-97.

Bank holding company

 NBD/First Chicago NBD

Market or portfolio share 1994 1995 1996 1997

Market share of loan origination for

 Chicago MSA

4.6% 6.2% 5.0% 5.5%

Market share of census tracts that were:

 LMI 5.3 5.9 5.7 6.3

 Minority 5.4 6.2 5.4 6.4

Portfolio share of census tracts that were:

 LMI 11.0 10.4 10.9 12.6

 Minority 26.9 24.0 24.5 28.2

Source: HMDA data.

Fleet’s 1995 acquisition of Shawmut National Bank is associated with a

reduction in mortgage lending to LMI and minority census tracts that

mirrored Fleet’s overall reduction in mortgage lending for the Boston MSA.

According to Fleet Financial Group officials, over the period of 1994-97,

the Boston MSA experienced a significant influx of mortgage lenders that

resulted in competitive pressures and a subsequent reduction in residential

mortgage lending among existing lenders in that market. As shown in table

NBD First Chicago Bank

Merger Showed Fairly

Stable LMI and Minority

Lending

Table 3: Market and Portfolio Shares

for NBD/First Chicago Bank Holding

Companies for Conventional, SingleFamily Home Purchase Loan

Originations in the Chicago MSA

Fleet Merger Had Reduction

in Lending in LMI and

Minority Areas That

Mirrored Its Reduction in

the Overall Market
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4, market share statistics for conventional, single-family home purchase

loan originations indicated large declines for both LMI and minority census

tracts as well as overall in the Boston MSA. Portfolio shares only declined

slightly.

Bank holding company

 Fleet/Shawmut Fleet

Market or portfolio share 1994 1995 1996 1997

Market share of loan origination for Boston

 MSA

9.2% 11.5% 6.1% 4.3%

Market share of census tracts that were:

 LMI 26.3 27.1 14.7 10.2

 Minority 32.8 32.7 17.2 11.6

Portfolio share of census tracts that were:

 LMI 34.4 32.3 33.2 32.6

 Minority 27.1 25.7 25.3 24.5

Source: HMDA data.

As shown in table 5, Chemical Bank’s 1996 acquisition of Chase Manhattan

Bank is associated with increased market and portfolio shares of loan

originations in LMI census tracts. Market and portfolio shares in minority

census tracts were fairly stable.

Bank holding company

 Chemical/Chase Chase

Market or portfolio share 1995 1996 1997 1998

Market share of loan origination for New

 York City MSA

14.3% 13.8% 14.4% a

Market share of census tracts that were:

 LMI 10.6 11.8 18.2 a

 Minority 13.0 12.8 14.4 a

Portfolio share of census tracts that were:

 LMI 6.4 6.2 10.0 9.9%

 Minority 39.0 37.9 40.4 41.7

a

FRB provided us with 1998 HMDA data that allowed us to calculate portfolio, but not market share

measures of lending performance.

Source: HMDA data.

In acting on a BHC merger application, FRB must consider the

convenience and needs of the community to be served under the BHC Act

and take into account the CRA records of the relevant banks. FRB’s

Regulation Y, promulgated under the BHC Act, requires public notice of a

BHC application and a specific public comment period. FRB said it

voluntarily adopted the requirement of notice, comment, and specific

comment period because it found the public process helpful.

Table 4: Market and Portfolio Shares

for Fleet/Shawmut Bank Holding

Company for Conventional, SingleFamily Home Purchase Loan

Originations in the Boston MSA

Chase Manhattan Bank

Merger Showed an Increase

in LMI and Minority Lending

Table 5: Market and Portfolio Shares

for Chemical/Chase Manhattan Bank

Holding Companies for Conventional,

Single-Family Home Purchase Loan

Originations in the New York City MSA

Conclusions
B-280468

Page 26 GAO/GGD-99-180 Guidelines for Community Reinvestment Issues

In the six BHC merger applications that we reviewed, it appeared to us

that FRB attempted to balance the CRA performance ratings of the bank

subsidiaries of the merging BHCs with information presented through

public comments that raised concerns with the institutions’ CRA records.

Both the BHC applicants and the community groups raising CRA concerns

lacked relevant information on how FRB analyzes an institution’s CRA

record. The implications of FRB’s actions are of major importance to the

parties involved in the BHC merger application process. The merging

BHCs have a business interest in completing the merger in a timely manner

with minimal disruption of their future consolidation efforts. The

community groups that submit comments on large BHC mergers have an

interest in ensuring that specific community credit issues are being

addressed.

A more transparent process is needed regarding how FRB balances the

CRA ratings of banks, particularly those with good CRA ratings, such as

the banks in our study, with public comments raising CRA concerns. A

more transparent process could be useful for both BHC applicants and

public commenters. Enhanced transparency could improve the BHC

applicants’ understanding of what information is expected of them, what

role public comments play in FRB’s CRA review, and what information

FRB focuses on in response to different CRA concerns. In addition, a

more transparent process may contribute to more focused public

comments from community organizations and provide commenters with

knowledge of how FRB analyzes an institution’s CRA record, such as its

home mortgage lending performance.

To enhance the transparency and improve the efficiency with which CRA

concerns are addressed in the BHC merger application process, we

recommend that FRB develop written guidelines that summarize how

public comments raising CRA concerns are used with CRA examination

information in FRB’s merger application decisions for large BHCs. For

example, such guidelines could summarize important conclusions from

previous Board of Governors application decisions. Such guidelines could

also include when and how concerns raised in public comments will be

considered, the types of analyses FRB is likely to conduct and rely upon in

reaching its conclusions, and the situations in which HMDA statistics are

limited.

We received written comments on a draft of this report from FRB that are

reprinted in appendix VI. FRB generally agreed with our recommendation

that it develop written guidelines to enhance the transparency of the

process. The letter stated that FRB will consider how best to convey

Recommendation

Agency Comments
B-280468

Page 27 GAO/GGD-99-180 Guidelines for Community Reinvestment Issues

useful information focusing on the CRA aspects of the application process

and discussed information that could be included in an FRB guide to the

process. In addition, FRB provided technical comments, which we have

incorporated where appropriate.

We received written comments on a draft of this report from OCC that are

reprinted in appendix VII. OCC also provided technical comments, which

we have incorporated where appropriate.

We are sending copies of this report to Senator Phil Gramm and Senator

Paul Sarbanes and to Representative Barney Frank, Representative John

LaFalce, Representative Rick Lazio, Representative Jim Leach,

Representative Marge Roukema, and Representative Bruce Vento in their

capacities as Chair or Ranking Minority Member of Senate and House

Committees and Subcommittees. We are also sending copies of this report

to the Honorable Alan Greenspan, Chairman of the Board of Governors of

the Federal Reserve System; the Honorable John Hawke, Comptroller of

the Currency; and others upon request.

Please call me or Bill Shear, Assistant Director, at (202) 512-8678 if you or

your staffs have any questions concerning this report. Key contributors to

this report are acknowledged in appendix VIII.

Thomas J. McCool

Director, Financial Institutions

 and Markets Issues
Page 28 GAO/GGD-99-180 Guidelines for Community Reinvestment Issues

Contents

1 Letter

34

FRB’s Legal Responsibilities 34

FRB’s Process for Reviewing BHC Merger Applications 34

Premerger and Postmerger Home Mortgage Lending 35

Appendix I

Scope and

Methodology

37

NBD’s Acquisition of First Chicago 37

Fleet’s Acquisition of Shawmut 38

Chemical’s Acquisition of Chase Manhattan 39

NationsBank’s Acquisition of Boatmen’s Bancshares 40

NationsBank’s Acquisition of BankAmerica 43

Bank One’s Acquisition of NBD First Chicago 44

Appendix II

Premerger Bank

Subsidiary CRA

Performance Ratings

46

NBD’s Acquisition of First Chicago 46

Fleet’s Acquisition of Shawmut 46

Chemical’s Acquisition of Chase Manhattan 46

NationsBank’s Acquisition of Boatmen’s Bancshares 46

NationsBank’s Acquisition of BankAmerica 47

Bank One’s Acquisition of NBD First Chicago 47

Appendix III

Discussion of Principal

CRA Concerns Raised

by Commenters

Appendix IV 48

Examples of FRB

Analysis of HMDA

Data in Response to

Public Concerns

51

NBD First Chicago Bank Merger Shows Fairly Stable LMI

and Minority Lending

51

Fleet Merger Had Reduction in Lending in LMI and

Minority Areas That Mirrored Its Reduction in the

Overall Market

51

Chase Manhattan Bank Merger Shows an Increase in LMI

and Minority Lending

52

Appendix V

BHC Mergers and

Lending in Minority

and Low- and

Moderate-Income

Areas
Contents

Page 29 GAO/GGD-99-180 Guidelines for Community Reinvestment Issues

Appendix VI 53

Comments From the

Federal Reserve Board

Appendix VII 54

Comments From the

Office of the

Comptroller of the

Currency

Appendix VIII 55

GAO Contacts and

Staff

Acknowledgments

Table 1: Number of BHC Merger/Acquisition Cases

Receiving CRA Protests

12

Table 2: The Distribution of CRA Performance Ratings

for Large Banks Examined by OCC and FRB, 1995-98

13

Table 3: Market and Portfolio Shares for NBD/First

Chicago Bank Holding Companies for Conventional,

Single-Family Home Purchase Loan Originations in the

Chicago MSA

24

Table 4: Market and Portfolio Shares for Fleet/Shawmut

Bank Holding Company for Conventional, SingleFamily Home Purchase Loan Originations in the

Boston MSA

25

Table 5: Market and Portfolio Shares for Chemical/Chase

Manhattan Bank Holding Companies for Conventional,

Single-Family Home Purchase Loan Originations in the

New York City MSA

25

Table II.1: NBD Corporation Premerger CRA Ratings 37

Table II.2: First Chicago Corporation Premerger CRA

Ratings

37

Table II.3: Fleet Financial Group Premerger CRA Ratings 38

Tables

Table II.4: Shawmut National Corporation Premerger

CRA Ratings

38
Contents

Page 30 GAO/GGD-99-180 Guidelines for Community Reinvestment Issues

Table II.5: Chemical Banking Corporation Premerger

CRA Ratings

39

Table II.6: Chase Manhattan Corporation Premerger CRA

Ratings

39

Table II.7: NationsBank Corporation Premerger CRA

Ratings

40

Table II.8: Boatmen’s Bancshares Premerger CRA

Ratings

41

Table II.9: NationsBank Corporation Premerger CRA

Ratings

43

Table II.10: BankAmerica Corporation Premerger CRA

Ratings

43

Table II.11: Bank One Corporation Premerger CRA

Ratings

44

Table II.12: First Chicago NBD Corporation Premerger

CRA Ratings

45

Table IV.1: HMDA Statistics Generated in Response to

Public Concerns Raised in NBD’s Acquisition of First

Chicago

48

Table IV.2: HMDA Statistics Generated in Response to

Public Concerns Raised in Fleet’s Acquisition of

Shawmut

49

Table IV.3: HMDA Statistics Generated in Response to

Public Concerns Raised in Chemical’s Acquisition of

Chase

49

Table IV.4: HMDA Statistics Generated in Response to

Public Concerns Raised in NationsBank Acquisition of

Boatmen’s

49

Table IV.5: HMDA Statistics Generated in Response to

Public Concerns Raised in NationsBank’s Acquisition

of Bank America

50

Table IV.6: HMDA Statistics Generated in Response to

Public Concerns Raised in Bank One’s Acquisition of

NBD First Chicago

50

Table V.1: Market and Portfolio Shares for First

Chicago/NBD Bank Holding Companies for All SingleFamily Mortgage Loan Originations in the Chicago MSA

51

Table V.2: Market and Portfolio Shares for Fleet/Shawmut

Bank Holding Company for All Single-Family Mortgage

Loan Originations in the Boston MSA

52
Contents

Page 31 GAO/GGD-99-180 Guidelines for Community Reinvestment Issues

Table V.3: Market and Portfolio Shares for

Chemical/Chase Manhattan Bank Holding Companies

for All Single-Family Mortgage Loan Originations in the

New York City MSA

52
Contents

Page 32 GAO/GGD-99-180 Guidelines for Community Reinvestment Issues

Abbreviations

BHC bank holding company

CRA Community Reinvestment Act

DCCA Division of Consumer and Community Affairs

FDIC Federal Deposit Insurance Corporation

FFIEC Federal Financial Institutions Examination Council

FRB Federal Reserve Board

HMDA Home Mortgage Disclosure Act of 1975

LMI low- and moderate-income

MSA metropolitan statistical area

OCC Office of the Comptroller of the Currency

OTS Office of Thrift Supervision
Page 33 GAO/GGD-99-180 Guidelines for Community Reinvestment Issues
Appendix I

Scope and Methodology

Page 34 GAO/GGD-99-180 Guidelines for Community Reinvestment Issues

To provide a more detailed description of our scope and methodology, this

appendix supplements our discussion contained in the letter of this report.

Our legal analysis included a review of the Bank Holding Company Act of

1956 (BHC Act) and the Community Reinvestment Act of 1977 (CRA).

Included in this review was our analysis of statutory amendments to the

BHC Act and court decisions addressing the convenience and needs factor

in the BHC Act.

To identify the principal CRA comments submitted to the Federal Reserve

Board (FRB) on each of the six mergers, we reviewed summaries of

comments prepared by FRB’s Legal Division and the Division of Consumer

and Community Affairs (DCCA). The Legal Division wrote summaries for

four merger applications—Fleet Financial Group’s acquisition of Shawmut

National Corporation, Chemical Banking Corporation’s acquisition of

Chase Manhattan Corporation, NationsBank Corporation’s acquisition of

BankAmerica Corporation, and Bank One Corporation’s acquisition of

NBD First Chicago Corporation. To verify the completeness of the Legal

Division’s and DCCA’s summaries, we developed a data collection

instrument, took a sample of comment letters from Chemical’s acquisition

of Chase Manhattan and NationsBank’s acquisition of BankAmerica and

compared our data with the written summaries. From our sampling of

these comment letters, we determined that the Legal Division’s and

DCCA’s summaries of public comments were accurate. We focused our

attention on public comments addressing CRA performance measures. We

did not analyze comments raising employment, safety and soundness, or

competitive issues. We also did not analyze comments raising personal

complaints (e.g., “I did not receive a loan”) or managerial issues if they

were not directly tied to CRA performance. We did not assess the validity

of the public comments or verify the accuracy of data submitted with the

comments. We also did not verify the accuracy of the data FRB relied

upon in its response to public concerns.

To identify how FRB addressed the principal CRA comments for the six

mergers in our case study, we reviewed DCCA’s internal memorandums

and supporting documentation submitted to the Board of Governors and

the Board of Governors’ Orders approving the mergers. We also

interviewed officials from DCCA and the Legal Division and officials from

the Federal Reserve Bank of New York. Specifically for DCCA, we

interviewed the Manager of Applications in DCCA and each analyst who

was responsible for assessing the CRA performance of the six mergers.

We interviewed officials from Bank America Corporation, Bank One,

Chase Manhattan Corporation, and Fleet Financial Group. We also

FRB’s Legal

Responsibilities

FRB’s Process for

Reviewing BHC Merger

Applications
Appendix I

Scope and Methodology

Page 35 GAO/GGD-99-180 Guidelines for Community Reinvestment Issues

interviewed a number of community groups that submitted comments or

testified in public meetings on the bank holding company (BHC) merger

applications included in our case studies.

To identify how FRB used Home Mortgage Disclosure Act of 1975 (HMDA)

analysis to address public concerns, we specified the relevant geographic

areas at the state, county, or metropolitan statistical area level of

aggregation. We obtained selected reproductions of FRB analyses

conducted in response to the principal public concerns raised. FRB

officials told us that for some of the older mergers, they had not retained

computer-generated output or documentation of the computer programs

used to produce the output at the time of the merger application. FRB

officials told us that it would be difficult and costly to reconstruct and

reproduce the delineated areas for the bank subsidiaries of each BHC at

the time of the merger application. FRB officials told us that the statistical

tabulations they supplied to us would likely correspond closely to the

statistical results obtained when the merger application was being

processed at FRB.

We did not analyze FRB’s analysis of CRA small business loan file data to

address public concerns of insufficient small business lending.

To determine the premerger and postmerger mortgage lending in low- and

moderate-income (LMI) and minority communities for three mergers, we

used HMDA data. FRB provided us with “value-added” HMDA data for the

years 1994-98; in these data, the individual HMDA loan files were merged

with census tract characteristics from the 1990 Census of Population and

Housing. We undertook steps to verify, in part, the accuracy of HMDA

data used in our premerger and postmerger HMDA analysis for the three

BHC mergers that we reviewed. We reviewed information on the process

used by the Federal Financial Institutions Examination Council’s (FFIEC)

member agencies for the identification and resolution of errors in the

HMDA information submitted by lenders. In November 1994, FRB

amended a regulation to require lenders to update the HMDA information

on their loan activity on a quarterly basis and to require most lenders to

submit their data to the supervisory agencies in a machine-readable form.

We discussed HMDA data with FRB and BHC officials. We identified that

HMDA data on home improvement loans were not consistently reported by

all HMDA reporters because they have the option to report equity lines of

credit as home improvement loans. We also obtained a list of the bank and

nonbank subsidiaries of the three BHCs who were HMDA filers in the

metropolitan statistical areas we were analyzing. We obtained the list of

HMDA reporters from DCCA as well as Bank One, Chase Manhattan, and

Premerger and

Postmerger Home

Mortgage Lending
Appendix I

Scope and Methodology

Page 36 GAO/GGD-99-180 Guidelines for Community Reinvestment Issues

Fleet. In cases where discrepancies were present, we conducted statistical

analyses and followed up with inquiries to DCCA and BHCs to reach

resolution.

In our mortgage lending analysis, we defined a census tract as LMI if

median family income for the census tract was less than 80 percent of

median family income for the metropolitan statistical area. Consistent with

definitions used in an analysis of trends in home purchase lending recently

conducted by FRB, we classified a census tract as a minority tract if 20

percent or more of the residents were members of minority groups.1

 This

definition of a minority tract therefore includes census tracts that can be

characterized as integrated as well as census tracts that have a greater

number of minority residents.

FRB provided us with 1998 HMDA data that allowed us to calculate

portfolio, but not market share, measures of lending performance for

Chase Manhattan in the 2nd year after the acquisition was completed.

During the time frame of our work, 1998 HMDA data required to calculate

market shares were not available.

HMDA data alone cannot reflect changes in market conditions that help

determine market outcomes. For example, mortgage interest rates change

over time, thus affecting the number of households among different

income groups that purchase a home or refinance existing mortgages. We

calculated portfolio and market shares for both the universe of singlefamily mortgage originations and conventional home purchase mortgage

originations to see if the various statistical results were consistent with

one another. We also calculated the BHC’s market share in all census

tracts to create a benchmark that can be compared to changes in the

BHC’s market share in LMI and minority census tracts.

We tested the HMDA data we obtained from FRB for missing variable

values. We found that the variables on which we relied, such as HMDA

reporter, metropolitan statistical area, census tract number, census tract

family income, and census tract minority population, were not missing for

the years 1994 through 1998.

 1

 Robert B. Avery, Raphael W. Bostic, Paul S. Calem, and Glenn B. Canner, “Trends in Home Purchase

Lending: Consolidation and the Community Reinvestment Act,” Federal Reserve Bulletin (Feb. 1999),

pp. 81-102.
Appendix II

Premerger Bank Subsidiary CRA Performance

Ratings

Page 37 GAO/GGD-99-180 Guidelines for Community Reinvestment Issues

Tables II.1 through II.12 list the premerger CRA performance ratings for all

bank subsidiaries owned by the applicant and the target institutions of the

six BHC merger cases that we reviewed.

NBD Corporation acquired First Chicago Corporation in 1995.

NBD Corporation bank subsidiaries

Assets

(in millions) CRA ratings Date Agency

NBD-Michigan, N.A,. Detroit, MI $31,000.0 Outstanding March 31, 1993 OCC

NBD-Skokie, N.A., Skokie, IL 781.9 Satisfactory March 31, 1995 0CC

NBD-Indianapolis, N.A., Indianapolis, IN 9,986.1 Outstanding April 20, 1993 0CC

NBD-Elkhart, Elkhart, IN 718.9 Satisfactory June 1, 1993 FRB-Chicago

NBD-Florida, Venice, Fl 78.3 Satisfactory October 20, 1994 OTS

NBD-Ohio, Columbus, OH 706.4 Outstanding May 16, 1994 OCC

NBD-Wheaton, Wheaton, IL 5,719.0 Outstanding October 29, 1993 OCC

Source: Federal Reserve Board.

First Chicago Corporation bank subsidiaries

Assets

(in billions) CRA ratings Date Agency

First National Bank of Chicago,

 Chicago, IL

$49.3 Satisfactory November 5, 1993 OCC

American National Bank and Trust Co.

 Chicago, IL

6.2 Satisfactory April 11, 1994 OCC

FCC National Bank, Wilmington, DE 5.8 Outstanding April 11, 1994 OCC

Source: Federal Reserve Board.

NBD’s Acquisition of

First Chicago

Table II.1: NBD Corporation Premerger CRA Ratings

Table II.2: First Chicago Corporation Premerger CRA Ratings
Appendix II

Premerger Bank Subsidiary CRA Performance Ratings

Page 38 GAO/GGD-99-180 Guidelines for Community Reinvestment Issues

Fleet Financial Group acquired Shawmut in 1995.

Fleet Financial Group bank subsidiaries

Assets

(in billions) CRA ratings Date Agency

Fleet Bank, Albany, NY $14.8 Satisfactory January 10, 1994 FRB-New York

Fleet Bank, Melville, NY N/A Outstanding May 18, 1992 FRB-New York

Fleet National Bank, Providence, RI 10.1 Satisfactory March 31, 1995 OCC

Fleet Bank of Massachusetts, N.A.,

 Boston MA

10.8 Satisfactory March 31, 1995 OCC

Fleet Bank., N.A., Hartford, CT 6.9 Outstanding March 31, 1993 OCC

Fleet Bank of Maine, Portland, ME 3.1 Outstanding August 8, 1994 FRB-Boston

Fleet Bank-NH, Nashua, NH 1.9 Outstanding August 8, 1994 FRB-Boston

Source: Federal Reserve Board.

Shawmut National Corporation bank

subsidiaries

Assets

(in billions) CRA ratings Date Agency

Shawmut Bank, N.A., Boston, MA $14.4 Satisfactory December 31, 1993 OCC

Shawmut Bank-Connecticut, N.A.,

 Hartford, CT

18.7 Satisfactory December 31, 1993 OCC

Shawmut Bank-NH, Manchester, NH 1.8 Satisfactory April 11, 1994 FDIC

Shawmut Bank-New York, N.A.,

 Schenectady, NYa

1.7 Not examined N/A N/A

Shawmut Bank, FSB, Boca Raton, FLb 0.2 Not examined N/A N/A

a

Shawmut Bank-New York was formed in June 1995 from the acquisition of branches of Northeast

Savings, F.A., Hartford, CT (Satisfactory, Sept. 28, 1992).

b

Shawmut Bank, FSB, was formed through the acquisition of branches from the Resolution Trust

Corporation in July 1994.

Source: Federal Reserve Board.

Fleet’s Acquisition of

Shawmut

Table II.3: Fleet Financial Group Premerger CRA Ratings

Table II.4: Shawmut National Corporation Premerger CRA Ratings
Appendix II

Premerger Bank Subsidiary CRA Performance Ratings

Page 39 GAO/GGD-99-180 Guidelines for Community Reinvestment Issues

Chemical Banking Corporation acquired Chase Manhattan in 1996.

Chemical Banking Corporation bank

subsidiaries

Assets

(in millions) CRA ratings Date Agency

Chemical Bank, New York, NY $153,100 Outstanding March 13, 1995 FRB-New York

Chemical Bank, N.A., Jericho, NY 4,342 Satisfactory September 30, 1994 OCC

Texas Commerce Bank, N.A.,

 Houston, TX

19,649 Outstanding September 14, 1994 OCC

Texas Commerce Bank--San Angelo,

 San Angelo, TX

201 Satisfactory September 15, 1994 OCC

Chemical Bank, New Jersey, N.A., East

 Brunswick, NJ

188 Satisfactory August 31, 1993 OCC

Princeton Bank & Trust Co, N.A., East

 Brunswick, NJ

N/A Satisfactory August 31, 1993 OCC

Chemical Bank, FSB, Palm Beach, FL 162 Satisfactory March 6, 1995 OTS

Source: Federal Reserve Board.

Chase Manhattan Corporation bank

subsidiaries

Assets

(in millions) CRA ratings Date Agency

The Chase Manhattan Bank, N.A.,

 New York, NY

$97,900 Satisfactory October 28, 1993 OCC

The Chase Manhattan Bank (USA)

Wilmington, DE

9,616 Outstanding August 30, 1994 FDIC

The Chase Manhattan Bank of Florida,

 N.A., Tampa, FL

409 Satisfactory October 6, 1993 OCC

The Chase Manhattan Bank of Maryland,

 Baltimore, MD

646 Satisfactory February 6, 1995 FRB-Richmond

Source: Federal Reserve Board.

Chemical’s Acquisition

of Chase Manhattan

Table II.5: Chemical Banking Corporation Premerger CRA Ratings

Table II.6: Chase Manhattan Corporation Premerger CRA Ratings
Appendix II

Premerger Bank Subsidiary CRA Performance Ratings

Page 40 GAO/GGD-99-180 Guidelines for Community Reinvestment Issues

NationsBank Corporation acquired Boatmen’s Bancshares in 1996.

Nationsbank Corporation subsidiaries

Assets

(in billions) CRA ratings Date Agency

NationsBank N.A. Carolinas, Charlotte, NCa $70.2 Outstanding July 21, 1995 OCC

NationsBank, N.A. (South), Atlanta, GA 49.5 Outstanding July 21, 1995 OCC

NationsBank of Texas, N.A., Dallas, TX 41.7 Outstanding July 21, 1995 OCC

NationsBank of Delaware, N.A., Dover, DE 6.6 Satisfactory July 21, 1995 OCC

NationsBank of Tennessee, N.A., Nashville,

 TN

4.9 Outstanding July 21, 1995 OCC

NationsBank of Kentucky, N.A., Hopkinsville,

 KY

0.2 Satisfactory July 21, 1995 OCC

Sun World, N.A., El Paso, TX 0.1 Not examined N/A N/A

a

Since the 1995 examinations, NationsBank merged several banks. NationsBank of Florida, N.A.,

Tampa, Fl, which merged into the Atlanta, GA, subsidiary, received a CRA rating of outstanding (July

1995). NationsBank, N.A., Richmond, VA, merged into the Charlotte, NC, bank and received a CRA

rating of outstanding (July 1995).

Source: Federal Reserve Board.

NationsBank’s

Acquisition of

Boatmen’s Bancshares

Table II.7: NationsBank Corporation Premerger CRA Ratings
Appendix II

Premerger Bank Subsidiary CRA Performance Ratings

Page 41 GAO/GGD-99-180 Guidelines for Community Reinvestment Issues

Boatmen’s Bancshares subsidiaries

Assets

(in billions) CRA ratings Date Agency

Boatmens NB of Batesville, Batesville, AR $160. 7 Outstanding April 29, 1996 OCC

Boatmens NB of North Central AR, Bull

 Shoals, AR

208.5 Outstanding April 1, 1996 OCC

Boatmens NB of South AR, Camden, AR 115.4 Outstanding April 29, 1996 OCC

Boatmens NB of Conway, Conway, AR 198.7 Outstanding April 29, 1996 OCC

Boatmens NB of North West AR, Fayetteville,

 AR

494.7 Outstanding May 6, 1996 OCC

Superior Federal Bank, FSB, Fort Smith, AR 1,229.2 Outstanding August 8, 1994 OTS

Boatmens NB of Hot Springs, Hot Springs, AR 304.9 Outstanding April 15, 1996 OCC

Boatmens BK of Northeast AR, Jonesboro,

 AR

257.7 Satisfactory February 13, 1995 FDIC

Boatmens NB of AR, Little Rock, AR 1,592.5 Outstanding April 8, 1996 OCC

Boatmens NB of Newark, Newark, AR 12.5 Outstanding May 6, 1996 OCC

Boatmens NB of Pine Bluff, Pine Bluff, AR 246.7 Outstanding April 29, 1996 OCC

Boatmens NB of Russellville, Russellville, AR 164.0 Outstanding April 22, 1996 OCC

Boatmens Bank of Franklin County, Benton, IL 166.1 Satisfactory November 28, 1994 FDIC

Boatmens NB Charleston, Charleston, IL 112.8 Satisfactory September 27, 1994 OCC

Boatmens NB of Central IL, Hillsboro, IL 109.2 Satisfactory September 12, 1994 OCC

Boatmens Bank of S. Central IL, Mount

 Vernon, IL

236.4 Outstanding January 3, 1994 FDIC

Boatmens Bank of Quincy, Quincy, IL 193.7 Outstanding February 4, 1994 FDIC

Boatmens Bank of Iowa, NA, Des Moines, IA 688.7 Outstanding September 6, 1994 OCC

Boatmens BK Fort Dodge, Fort Dodge, IA 104.5 Outstanding April 24, 1995 FDIC

Boatmens Bank North Iowa, Mason City, IA 258.7 Outstanding July 15, 1996 FDIC

Boatmens NB Northwest IA, Spencer, IA 115.9 Satisfactory July 25, 1994 OCC

Bank IV NA, Wichita, KS 4,754.7 Outstanding March13, 1995 OCC

Boatmens NB of Boonville, Boonville, MO 51.1 Satisfactory October 3, 1994 OCC

Boatmens Osage Bank, Butler, MO 113.3 Outstanding December 30, 1994 FDIC

Boatmens NB of Cape Girardeau, Cape

 Girardeau, MO

423.5 Satisfactory April 4, 1994 OCC

Boatmens Bank of Southwest MO, Carthage,

 MO

237.4 Outstanding September 5, 1995 FRB-Kansas

City

Boatmens Bank of Mid MO, Columbia, MO 288.4 Outstanding December 12, 1994 FDIC

Boatmens First NB of Kansas, Kansas City,

 MO

4,428.5 Outstanding January 18, 1994 OCC

Boatmens Bank, Kennett, MO 125.2 Satisfactory April 1, 1996 FDIC

Boatmens NB Lebanon, Lebanon, MO 100.1 Satisfactory August 15, 1994 OCC

Boatmens River Valley Bank, Lexington, MO 74.1 Outstanding January 19, 1996 FDIC

Boatmens Bank of Marshall, Marshall, MO 69.7 Outstanding August 16, 1994 FDIC

Boatmens Bank of Pulaski County, Richland,

 MO

46.9 Outstanding September 5, 1995 FDIC

Boatmens Bank, Rolla, MO 99.1 Outstanding August 8, 1994 FDIC

Boatmens NB of St. Louis, St. Louis 11,482.4 Outstanding February 26, 1996 OCC

Boatmens Bank of Southern MO, Springfield,

 MO

1,192.2 Outstanding October 18, 1995 FDIC

Boatmens Bank of Troy, Troy, MO 62.6 Satisfactory April 3, 1995 FDIC

Table II.8: Boatmen’s Bancshares Premerger CRA Ratings
Appendix II

Premerger Bank Subsidiary CRA Performance Ratings

Page 42 GAO/GGD-99-180 Guidelines for Community Reinvestment Issues

Boatmen’s Bancshares subsidiaries

Assets

(in billions) CRA ratings Date Agency

Boatmens Bank, Vandalia, MO 41.1 Satisfactory January 10, 1995 FRB-St. Louis

Boatmens First NB, West Plains, MO 152.5 Satisfactory September 12, 1994 OCC

Boatmens Credit Card Bank, Albuquerque,

 NM

580.9 Satisfactory August 19, 1994 FDIC

Sunwest Bank of Albuquerque, Albuquerque,

 NM

2,217.5 Outstanding April 4, 1994 OCC

Sunwest Bank of Clovis, NA, Clovis, NM 169.5 Outstanding March 31, 1994 OCC

Sunwest Bank of Rio Arriba, NA, Espanola,

 NM

90.7 Satisfactory March 31, 1994 OCC

Sunwest Bank of Farmington, Farmington, NM 79.1 Satisfactory March 8, 1996 FDIC

Sunwest Bank of Gallup, Gallup, NM 176.5 Satisfactory January 12, 1996 FDIC

Sunwest Bank of Hobbs, Hobbs, NM 78.1 Satisfactory April 11, 1994 OCC

Sunwest Bank of Las Cruces, NA,

 Las Cruces, NM

99.6 Satisfactory April 18, 1994 OCC

Sunwest Bank of Raton, NA, Raton, NM 84.4 Outstanding March 31, 1994 OCC

Sunwest Bank of Roswell, NA, Roswell, NM 165.3 Satisfactory March 31, 1994 OCC

Sunwest Bank of Santa Fe, Santa Fe, NM 283.2 Outstanding November 25, 1994 FDIC

Sunwest Bank, Silver City, NM 107.4 Outstanding April 24, 1995 FRB-Dallas

Boatmens NB of Oklahoma, Tulsa, OK 3,961.4 Satisfactory September 12, 1995 OCC

Boatmens Bank of Tennessee, Memphis, TN 942.7 Outstanding December 12, 1994 FDIC

Boatmens First NB, Amarillo, TX 1,586.1 Satisfactory May 16, 1994 OCC

Boatmens NB Austin, Austin, TX 120.9 Satisfactory October 10, 1994 OCC

Sunwest Bank, El Paso, TX 548.8 Outstanding July 8, 1996 FDIC

Source: Federal Reserve Board.
Appendix II

Premerger Bank Subsidiary CRA Performance Ratings

Page 43 GAO/GGD-99-180 Guidelines for Community Reinvestment Issues

NationsBank Corporation acquired BankAmerica in 1998.

NationsBank Corporation bank

subsidiaries

Assets

(in billions) CRA ratings Date Agency

NationsBank, N.A. (Carolinas), Charlotte, NCa $216.4 Outstanding July 21, 1995 OCC

NationsBank of Tennessee, N.A., Nashville,

 TN

6.0 Outstanding July 21, 1995 OCC

NationsBank of Kentucky, N.A., Hopkinsville,

 KY

0.2 Satisfactory July 21, 1995 OCC

NationsBank of Delaware, N.A., Dover, DE 6.7 Satisfactory July 21, 1995 OCC

NationsBank, N.A. (NationsBank-Glynn Co.),

 Brunswick, GA

0.3 Outstanding April 22, 1996 OTS

Sunwest Bank of El Paso, TX 0.6 Outstanding July 8, 1996 FDIC

Boatmen's National Bank of Austin, Austin, TX 0.1 Satisfactory December 31, 1994 OCC

Barnett Bank, N.A. (Barnett), Jacksonville, FL 46.3 Outstanding December 31, 1996 OCC

Community Bank of the Islands, Sanibel, FL 0.1 Outstanding January 31, 1996 FRB-Atlanta

Superior Federal Bank, FSB, Ft. Smith, AR 1.3 Outstanding August 8, 1994 OTS

a

At the time of the BHC merger application review, the NationsBank, N.A., operated in 14 states and

DC; it included all of NationsBank's East Coast banks (except banks in Tennessee, Kentucky, and the

Barnett Banks) and all former Boatmen's banks. NationsBank--TX merged into NationsBank, N.A., on

5/6/98 as the result of a court decision allowing the merger of Texas banks into banks based in other

states; Boatmen's-TX and Sunwest-TX were also merged into the NC bank.

Source: Federal Reserve Board.

BankAmerica Corporation bank

subsidiaries

Assets

(in billions) CRA ratings Date Agency

Bank of America National Trust and SA,

 San Francisco, CA

$240.4 Outstanding September 30, 1997 OCC

Bank of America, N.A., Phoenix, AZ 6.7 Outstanding October 31, 1996 OCC

Bank of America Texas, N.A., Irving, TX 5.3 Outstanding October 31, 1996 OCC

Bank of America, FSB, Portland, ORa 15.8 Outstanding June 9, 1997 OTS

Bank of America Community Development

 Bank, Walnut Creek, CAb

0.4 Outstanding August 27, 1997 FDIC

a

All deposit-taking branches were sold (Hawaii, Dec. 5, 1997, and in-store branches in the Chicago

MSA, Jan. 31,1998). Other divisions included BankAmerica's mortgage company and a community

development division, which generally complemented the activities of the Bank of America

Community Development Bank and operated in states other than California.

b

The bank was considered a leader for community development efforts for all BankAmerica banking

units. Its activities focused on Small Business Administration lending, affordable housing lending, and

community development services; it operated mainly in California.

Source: Federal Reserve Board.

NationsBank’s

Acquisition of

BankAmerica

Table II.9: NationsBank Corporation Premerger CRA Ratings

Table II.10: BankAmerica Corporation Premerger CRA Ratings
Appendix II

Premerger Bank Subsidiary CRA Performance Ratings

Page 44 GAO/GGD-99-180 Guidelines for Community Reinvestment Issues

Bank One Corporation acquired NBD First Chicago in 1998.

Bank One Corporation bank

subsidiaries

Assets

(in millions) CRA ratings Date Agency

Bank One NA, Columbus, OHa $24,607 Outstanding January 21, 1995 OCC

Bank One Texas, NA, Dallas, TX 24,509 Satisfactory October 31, 1997 OCC

Bank One Arizona, NA, Phoenix, AZ. 14,678 Satisfactory October 28, 1996 OCC

Bank One Wisconsin, Milwaukee, WIa 9,007 Satisfactory November 25, 1995 OCCc

First USA Bank, Wilmington, DE 9,002 Satisfactory August 19, 1996 FDICd

Bank One Indiana, NA, Indianapolis, INa 8,323 Outstanding February 21, 1995 OCC

Bank One LA, NA, Baton Rouge, LA 6,003 Satisfactory September 19, 1996 OCC

Bank One Kentucky, NA, Louisville, KY 5,456 Outstanding November 7, 1994b OCC

Bank One Oklahoma, NA, Oklahoma City,

 OK

3,890 Satisfactory April 22, 1996 OCC

Bank One Illinois, NA, Springfield, IL 3,535 Outstanding December 21, 1994 OCC

Bank One Colorado, NA, Denver, CO 2,956 Outstanding January 13, 1997 OCC

Bank One West VA, NA, Huntington, WV 2,397 Satisfactory June 30, 1997 OCC

Bank One Utah, NA, Salt Lake City, UT 1,025 Satisfactory October 31, 1997 OCC

Bank One Trust Co., NA, Columbus, OHe 581 Not examined N/A OCC

Bank One Wheeling, Steubenville, NA,

 Wheeling, WV

453 Satisfactory April 15, 1996 OCC

a

FRB staff noted that subsequent to the 1995 CRA examination of Bank One's Columbus, OH, bank

subsidiary, it merged several other Bank One Ohio bank subsidiaries into the Columbus bank.

Similarly, Bank One merged its other Indiana bank subsidiaries into the Indianapolis, IN, bank after

that bank's 1995 CRA examination. In Wisconsin, Bank One merged several of its subsidiaries into

the Milwaukee bank subsequent to that bank subsidiary's 1995 CRA examination. Also, in Illinois,

Bank One merged several subsidiaries into the Springfield bank, which was examined in late 1994.

Therefore, these 1994/1995 ratings do not represent examinations of Bank One's activities throughout

these three states. FRB staff noted that all Bank One's banks that were merged out of existence had

at least satisfactory CRA ratings.

b

At the time of the BHC merger application review, the primary bank regulator was conducting a CRA

examination at the bank.

c

Changed to an OCC charter in April 1998.

d

Changed to a FDIC charter in October 1996.

e

The subsidiary was not subject to CRA.

Source: Federal Reserve Board.

Bank One’s Acquisition

of NBD First Chicago

Table II.11: Bank One Corporation Premerger CRA Ratings
Appendix II

Premerger Bank Subsidiary CRA Performance Ratings

Page 45 GAO/GGD-99-180 Guidelines for Community Reinvestment Issues

First Chicago NBD Corporation bank

subsidiaries

Assets

(in millions) CRA ratings Date Agency

First NB of Chicago, Chicago, IL $58,138 Satisfactory November 3, 1997 OCC

NBD Bank, Detroit, MI 22,138 Outstanding May 28, 1996a FRB-Chicago

FCC National Bank, Wilmington, DE 9,404 Outstanding May 17, 1995a OCC

NBD Bank, NA, Indianapolis, IN 9,268 Outstanding March 11, 1996 OCC

American NB & Trust, Chicago, IL 9,260 Satisfactory January 9, 1995a OCC

NBD Bank, Elkhart, IN 713 Outstanding July 26, 1998 FDIC

NBD Bank, Venice FL 129 Satisfactory August 12, 1996 FDIC

a

At the time of the BHC merger application review, the primary bank regulator was conducting a CRA

examination at the bank.

Source: Federal Reserve Board.

Table II.12: First Chicago NBD Corporation Premerger CRA Ratings
Appendix III

Discussion of Principal CRA Concerns Raised

by Commenters

Page 46 GAO/GGD-99-180 Guidelines for Community Reinvestment Issues

FRB received both supportive and opposing comments for all six mergers.

This appendix provides a discussion of the CRA concerns raised in each

merger. Our discussion includes the financial institutions, CRA comments,

and geographic areas raised in the concerns.

Commenters raised concerns that NBD had inadequate lending in LMI

areas in the Detroit MSA, where the lead bank subsidiary was located.

Similar concerns were also raised regarding the inadequacy of First

Chicago’s lending in the Lake County area of Chicago.

Commenters also alleged that NBD redlined many LMI Detroit

communities, as evidenced by the lead bank subsidiary’s lack of branch

presence and minimal marketing of credit products in these areas.

Commenters expressed concerns about inadequate lending by Fleet or its

subsidiaries in minority census tracts in the 13 MSAs in New York State.

Commenters alleged that the level of mortgage applications that Fleet

received in each MSA was not consistent with the demographics of each

MSA, and that the application denial rates evidenced disparate lending to

minorities and those in LMI census tracts.

Concerns were also raised regarding potential branch closures that would

result in decreased banking services to LMI neighborhoods.

Commenters raised CRA concerns for both Chemical and Chase

Manhattan. Concerns were expressed about Chemical’s and Chase’s

lending in all states where the banks had a banking presence. Commenters

also expressed concern that Chase had inadequate mortgage lending in

LMI communities in a broad cross-section of cities, including Chicago, Los

Angeles, Atlanta, Detroit, and Dallas. Commenters expressed concern that

Chemical lacked home mortgage lending in LMI census tracts in New York,

New Jersey, Delaware, Florida, and Texas.

Concerns were also raised regarding branch closures. In particular, a

number of commenters expressed concern with the impact of Chemical’s

announced branch closures in LMI areas of New York City.

Commenters expressed concern that NationsBank had inadequate

mortgage and business lending to minorities and possible branch closings

in Travis County, TX.

NBD’s Acquisition of

First Chicago

Fleet’s Acquisition of

Shawmut

Chemical’s Acquisition

of Chase Manhattan

NationsBank’s

Acquisition of

Boatmen’s Bancshares
Appendix III

Discussion of Principal CRA Concerns Raised by Commenters

Page 47 GAO/GGD-99-180 Guidelines for Community Reinvestment Issues

Similar to the previous NationsBank merger, numerous commenters

criticized the lending records of one or both banks in a number of

geographical areas. Commenters were concerned that one or both of the

banks did not adequately lend to LMI individuals and areas. Concerns

were also raised regarding NationsBank’s small business and rural lending,

and branch closings. One commenter asserted that the acquisition of

BankAmerica would result in branch closings and reductions in banking

services to LMI communities.

Commenters criticized both BHCs’ home mortgage lending and small

business lending in serving the needs of minority borrowers and LMI and

rural areas. Some commenters’ concerns were related to Bank One’s April

1998 decision to modify its mortgage lending strategy, which they

interpreted as the bank’s plan to exit the mortgage lending business.

Commenters feared that such a strategy would have the impact of reduced

access to mortgage credit for certain individuals.

Commenters also expressed concern about branch closings, including the

concern that branch closings would reduce the availability of banking

services to individuals in LMI and minority neighborhoods. In addition,

commenters expressed concern about Bank One’s refusal to enter into

community reinvestment agreements similar to the agreements entered

into by First Chicago in Detroit and Chicago.

NationsBank’s

Acquisition of

BankAmerica

Bank One’s Acquisition

of NBD First Chicago
Appendix IV

Examples of FRB Analysis of HMDA Data in

Response to Public Concerns

Page 48 GAO/GGD-99-180 Guidelines for Community Reinvestment Issues

For each merger application, DCCA produced statistical tabulations on

each geographic area where home mortgage lending concerns were raised.

Tables IV.1 through IV.6 present examples of FRB analysis conducted with

HMDA data that were performed in response to public concerns raised in

each of the six bank holding company mergers included in our case study.

The examples, which represent a small subset of DCCA’s tabulations, are

presented in six tables representing (1) NBD’s acquisition of First Chicago

in 1995, (2) Fleet’s acquisition of Shawmut in 1995, (3) Chemical’s

acquisition of Chase in 1996, (4) NationsBank’s acquisition of Boatmen’s in

1997, (5) NationsBank’s acquisition of BankAmerica in 1998, and (6) Bank

One’s acquisition of NBD First Chicago in 1998.

Each table includes statistics generated by FRB analysts for census tracts

classified as LMI in response to public comments stating that such lending

was insufficient. Each table also includes statistics generated for minority

applicants in the MSA or region. We reported FRB’s analysis for the

minority group accounting for the highest percentage of mortgage

originations in the geographic area. When analyses were performed for a

number of geographic areas covering one or more parties to the merger,

we reported FRB’s analysis for the area and merger partner we considered

to be most helpful for illustrating FRB’s process. For example, in NBD’s

acquisition of First Chicago, we reported FRB analysis for NBD in the

Detroit MSA. FRB also conducted an analysis for First Chicago in the

Chicago MSA and in Lake County, IL, in response to public comments on

First Chicago’s lending in those geographic areas.

NBD-Detroit MSA 1993 1994

Percentage of NBD mortgage applications

 from LMI tracts

8.3% 13.7%

Percentage of NBD mortgage applications

 from African-American applicants

6.6 11.7

Percentage of NBD mortgage originations

 from LMI tracts

7.6 16.3

Percentage of all institution mortgage

 originations from LMI tracts

6.9 12.4

Percentage of NBD mortgage originations

 to African-American applicants

5.6 11.2

Percentage of all institution mortgage

 originations to African-American applicants

5.0 10.3

Source: Federal Reserve Board.

Table IV.1: HMDA Statistics Generated

in Response to Public Concerns Raised

in NBD’s Acquisition of First Chicago
Appendix IV

Examples of FRB Analysis of HMDA Data in Response to Public Concerns

Page 49 GAO/GGD-99-180 Guidelines for Community Reinvestment Issues

Fleet-Albany 1993 1994

Percentage of Fleet mortgage applications

 from LMI tracts

16.6% 19.1%

Percentage of Fleet mortgage applications

 from African-American applicants

1.4 3.2

Percentage of Fleet mortgage originations

 from LMI tracts

15.2 17.8

Percentage of all institution mortgage

 originations from LMI tracts

12.4 13.4

Percentage of Fleet mortgage originations

 to African-American applicants

1.4 3.1

Percentage of all institution mortgage

 originations to African-American applicants

1.7 1.9

Source: Federal Reserve Board.

Chase-New York MSA 1993 1994

Percentage of Chase mortgage applications

 from LMI Tracts

8.5% 9.6%

Percentage of Chase mortgage applications

 from African-American applicants

12.3 17.7

Percentage of Chase mortgage originations

 from LMI tracts

7.7 9.3

Percentage of all institution mortgage

 originations from LMI Tracts

7.8 9.8

Percentage of Chase mortgage originations

 to African-American applicants

11.3 15.7

Percentage of all institution mortgage

 originations to African-American applicants

9.1 13.7

Source: Federal Reserve Board.

NationsBank-Travis County, TX 1994 1995

Percentage of NationsBank mortgage

 Applications from LMI tracts

24.3% 27.0%

Percentage of NationsBank mortgage

 applications from Hispanic applicants

13.2 16.2

Percentage of NationsBank mortgage

 Originations from LMI tracts

22.0 22.8

Percentage of all institution mortgage

 Originations from LMI tracts

15.5 16.8

Percentage of NationsBank mortgage

 originations to Hispanic applicants

10.2 13.3

Percentage of all institution mortgage

 originations to Hispanic applicants

8.7 11.1

Source: Federal Reserve Board.

Table IV.2: HMDA Statistics Generated

in Response to Public Concerns Raised

in Fleet’s Acquisition of Shawmut

Table IV.3: HMDA Statistics Generated

in Response to Public Concerns Raised

in Chemical’s Acquisition of Chase

Table IV.4: HMDA Statistics Generated

in Response to Public Concerns Raised

in NationsBank Acquisition of

Boatmen’s
Appendix IV

Examples of FRB Analysis of HMDA Data in Response to Public Concerns

Page 50 GAO/GGD-99-180 Guidelines for Community Reinvestment Issues

NationsBank-TX 1995 1996 1997

Percentage of NationsBank mortgage

 applications from LMI tracts

26.1% 23.9% 22.0%

Percentage of NationsBank mortgage

 applications from Hispanic applicants

18.6 18.3 18.4

Percentage of NationsBank mortgage

 originations from LMI tracts

21.1 18.4 15.7

Percentage of all institution mortgage

 originations from LMI tracts

14.7 14.1 14.2

Percentage of NationsBank mortgage

 originations to Hispanic applicants

15.7 14.3 13.9

Percentage of all institution mortgage

 originations to Hispanic applicants

15.5 15.2 15.1

Source: Federal Reserve Board.

Bank One-Indianapolis MSA 1995 1996 1997

Percentage of Bank One mortgage applications

 from LMI tracts

28.3% 24.4% 26.8%

Percentage of Bank One mortgage applications

 from African-American applicants

14.4 13.8 15.2

Percentage of Bank One mortgage originations

 from LMI tracts

23.0 19.1 21.6

Percentage of all institution mortgage

 originations from LMI tracts

16.6 16.1 16.9

Percentage of Bank One mortgage originations

 to African-American applicants

10.6 10.2 11.2

Percentage of all institution mortgage

 originations to African-American applicants

7.7 7.7 7.7

Source: Federal Reserve Board.

Table IV.5: HMDA Statistics Generated

in Response to Public Concerns Raised

in NationsBank’s Acquisition of Bank

America

Table IV.6: HMDA Statistics Generated

in Response to Public Concerns Raised

in Bank One’s Acquisition of NBD First

Chicago
Appendix V

BHC Mergers and Lending in Minority and

Low- and Moderate-Income Areas

Page 51 GAO/GGD-99-180 Guidelines for Community Reinvestment Issues

This appendix contains our statistical results using a broader universe of

all single-family home mortgage lending. We define a single-family

mortgage loan as a home purchase, refinancing, or home improvement

loan used to finance an one- to four-unit residential structure. Statistical

results using our narrower universe of conventional, single-family home

purchase loan originations are contained in the body of the letter.

Our broader universe of home mortgage lending includes home

improvement loans that are not consistently reported by all HMDA

reporters. HMDA reporters have the option to report equity lines of credit

as home improvement loans. We also include refinancing loans that are

more sensitive to interest rate changes as compared to home purchase

loans. Our broader universe also includes federally insured loans.

NBD First Chicago Bank’s market and portfolio share measures for all

single-family loan originations are presented in table V.1. The market share

percentages for NBD First Chicago were fairly stable from 1994 to 1997 for

both LMI and minority areas.

 NBD/First Chicago NBD

Market or portfolio share 1994 1995 1996 1997

Market share of loan origination for Chicago MSA 4.4% 5.5% 4.9% 5.0%

Market share of census tracts that were:

 LMI 3.9 4.1 3.7 4.0

 Minority 4.0 4.5 4.0 4.3

Portfolio share of census tracts that were:

 LMI 12.5 11.7 11.5 13.2

 Minority 27.7 25.2 25.0 27.9

Source: HMDA data.

As stated in the letter of this report, Fleet’s 1995 acquisition of Shawmut

National Bank is associated with a reduction in conventional, single-family

home purchase mortgage lending to LMI and minority census tracts that

mirrored Fleet’s overall reduction in mortgage lending for the Boston

metropolitan statistical area. According to Fleet Financial Group officials,

over the period of 1994 to 1997, the Boston MSA experienced a significant

influx of mortgage lenders that resulted in competitive pressures and a

subsequent reduction in residential mortgage lending among existing

lenders in that market. A generally consistent pattern is found in table V.2

for all single-family loan originations by Fleet in the Boston metropolitan

NBD First Chicago

Bank Merger Shows

Fairly Stable LMI and

Minority Lending

Table V.1: Market and Portfolio Shares for First Chicago/NBD Bank Holding Companies for All Single-Family Mortgage Loan

Originations in the Chicago MSA

Fleet Merger Had

Reduction in Lending

in LMI and Minority

Areas That Mirrored

Its Reduction in the

Overall Market
Appendix V

BHC Mergers and Lending in Minority and Low- and Moderate-Income Areas

Page 52 GAO/GGD-99-180 Guidelines for Community Reinvestment Issues

statistical area. Market share declines in LMI and minority census tracts

generally mirrored declines for all census tracts. The market share

declines in LMI and minority census tracts were accompanied by declines

in respective portfolio share measures.

 Fleet/Shawmut Fleet

Market or portfolio share 1994 1995 1996 1997

Market share of loan origination for Boston MSA 8.1% 10.2% 6.9% 5.7%

Market share of census tracts that were:

 LMI 17.3 19.1 11.6 9.1

 Minority 21.4 22.4 12.4 9.4

Portfolio share of census tracts that were:

 LMI 25.3 25.0 22.5 21.6

 Minority 18.8 18.2 14.8 13.5

Source: HMDA data.

Chase Manhattan Bank’s market and portfolio share statistics for all singlefamily loan originations in the New York City metropolitan statistical area

are presented in table V.3. The statistics are comparable to those for

conventional home purchase loans discussed in the letter of this report.

The market and portfolio shares of lending increased in LMI census tracts.

Market share in LMI census tracts increased between 1995 and 1997 from

6.8 percent to 9.2 percent. On balance, the statistics indicated that the

consolidated BHC did not reduce access to credit in LMI and minority

census tracts after FRB approved its BHC application in 1996.

 Chemical/Chase Chase

Market or portfolio share 1995 1996 1997 1998

Market share of loan origination for New York City MSA 10.8% 9.7% 10.1% a

Market share of census tracts that were:

 LMI 6.8 6.2 9.2 a

 Minority 9.1 8.0 8.9 a

Portfolio share of census tracts that were:

 LMI 6.8 6.6 10.4 9.4%

 Minority 39.6 38.2 41.1 40.1

a

FRB provided us with 1998 HMDA data that allowed us to calculate portfolio, but not market share

measures of lending performance.

Source: HMDA data.

Table V.2: Market and Portfolio Shares for Fleet/Shawmut Bank Holding Company for All Single-Family Mortgage Loan

Originations in the Boston MSA

Chase Manhattan Bank

Merger Shows an

Increase in LMI and

Minority Lending

Table V.3: Market and Portfolio Shares for Chemical/Chase Manhattan Bank Holding Companies for All Single-Family Mortgage

Loan Originations in the New York City MSA
Appendix VI

Comments From the Federal Reserve Board

Page 53 GAO/GGD-99-180 Guidelines for Community Reinvestment Issues
Appendix VII

Comments From the Office of the

Comptroller of the Currency

Page 54 GAO/GGD-99-180 Guidelines for Community Reinvestment Issues
Appendix VIII

GAO Contacts and Staff Acknowledgments

Page 55 GAO/GGD-99-180 Guidelines for Community Reinvestment Issues

Thomas J. McCool, (202) 512-8678

William B. Shear, (202) 512-4325

In addition to those named above, Joan M. Conway, Rachel M. DeMarcus,

Nancy Eibeck, Christopher C. Henderson, Sindy Udell, and Tonita G.

Woodson made key contributions to this report.

GAO Contacts

Acknowledgments
Page 56 GAO/GGD-99-180 Guidelines for Community Reinvestment Issues
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